Federal Student Aid Programs, 64378-64400 [E6-18183]

Agencies

• DEPARTMENT OF EDUCATION

[Federal Register Volume 71, Number 211 (Wednesday, November 1, 2006)]
[Rules and Regulations]
[Pages 64378-64400]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-18183]



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Part III





Department of Education





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34 CFR Parts 668, 673, 682 and 685



 Federal Student Aid Programs; Final Rule

Federal Register / Vol. 71, No. 211 / Wednesday, November 1, 2006 / 
Rules and Regulations

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DEPARTMENT OF EDUCATION

34 CFR Parts 668, 673, 682 and 685

RIN 1840-AC87


Federal Student Aid Programs

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary is amending the Federal Student Aid Program 
regulations to implement the changes to the Higher Education Act of 
1965, as amended (HEA), resulting from the Higher Education 
Reconciliation Act of 2005 (HERA), Pub. L. 109-171, and other recently 
enacted legislation. These final regulations reflect the provisions of 
the HERA that affect students, borrowers, postsecondary educational 
institutions, lenders, and other program participants in the Federal 
student aid programs authorized under Title IV of the HEA.
    Final regulations for the two new Title IV grant programs created 
by the HERA, the Academic Competitiveness Grant Program and the 
National Science and Mathematics Access to Retain Talent (SMART) Grant 
Program, are being published in a separate notice in the Federal 
Register.

DATES: Effective Date: These final regulations are effective December 
1, 2006.

FOR FURTHER INFORMATION CONTACT: Ms. Gail McLarnon, U.S. Department of 
Education, 1990 K Street, NW., 8th Floor, Washington, DC 20006. 
Telephone: (202) 219-7048 or via the Internet at: Gail.McLarnon@ed.gov.
    If you use a telecommunications device for the deaf (TDD), you may 
call the Federal Relay Service (FRS) at 1-800-877-8339.
    Individuals with disabilities may 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: On August 9, 2006, the Secretary published 
in the Federal Register interim final regulations with a request for 
comments (71 FR 45666) for the Federal student financial assistance 
programs. The interim final regulations were effective on September 8, 
2006, and implemented most of the changes made to the HEA by the HERA, 
enacted as part of the Deficit Reduction Act of 2005 (Pub. L. 109-171). 
The interim final regulations also implemented changes made to the HEA 
by: The Taxpayer-Teacher Protection Act of 2004 (Pub. L. 108-409); 
certain provisions of Pub. L. 107-139; the Pell Grant Hurricane and 
Disaster Relief Act (Pub. L. 109-66); the Student Grant Hurricane and 
Disaster Relief Act (Pub. L. 109-67); and the Emergency Supplemental 
Appropriations Act for Defense, the Global War on Terror, and Hurricane 
Recovery, 2006 (Pub. L. 109-234).
    The August 9, 2006, interim final regulations included a request 
for public comment. This document contains a discussion of the comments 
we received and revisions to the interim final regulations that we made 
as a result of these comments.
    In the interim final regulations, we stated that changes to the 
final regulations made after consideration of the public comments would 
be effective July 1, 2007. After considering the comments we received, 
we have decided not to make any substantive changes to the regulations. 
We have made some technical and conforming changes that were identified 
during the public comment period, but these technical changes are not 
subject to the delayed effective date under section 482 of the HEA, and 
therefore become effective 30 days after publication of these final 
regulations.

Analysis of Comments and Changes

    The changes to the interim final regulations included in this 
document were developed through the analysis of comments received on 
the interim final regulations published on August 9, 2006. We received 
55 comments on the interim final regulations.
    An analysis of the comments and of the changes in the regulations 
since publication of the interim final regulations follows. We group 
major issues according to subject, with appropriate sections of the 
regulations referenced in parentheses. Generally, we do not address 
technical and other minor changes and suggested changes the law does 
not authorize the Secretary to make. We also do not respond to comments 
pertaining to issues that were not within the scope of the interim 
final regulations.

Definition of Telecommunications Course (Sec.  600.2)

    Comments: A commenter representing accrediting agencies believed 
that the reference to ``regular and substantive interaction'' in the 
definition of telecommunications course was inconsistent with Congress' 
intent to permit institutions maximum flexibility in the development 
and application of curriculum, and placed an undue burden on 
accrediting agencies.
    Discussion: The Secretary does not agree. The regulations do not 
restrict the curricula institutions may offer or the delivery modes 
they may use. Instead, the regulations reflect the clear distinction in 
the HERA between telecommunications courses and correspondence courses. 
This distinction is necessary because the HERA eliminated the 
circumstances under which telecommunications courses are considered 
correspondence courses, and excluded telecommunications courses from 
the ``50 percent rule'' limitations on institutional eligibility for 
Title IV, HEA program assistance, while retaining them for 
correspondence courses. Because of the changes made by the HERA, it is 
necessary to clarify the regulatory definition to distinguish 
telecommunications courses from correspondence courses. We have defined 
the term telecommunications course to conform to the usage of that term 
by the higher education community. None of the commenters proposed 
alternative language.
    The revised definition of the term telecommunications course does 
not impose any new requirements on accrediting agencies. Since 1998, 
section 496(n)(3) of the HEA has required the Secretary to specifically 
designate whether recognized accrediting agencies have accreditation of 
distance education within the scope of their recognition. Since 1994, 
accrediting agencies have also been required under Sec.  
602.22(a)(2)(iii) to provide prior approval for an institution's 
addition of courses or programs that represent a significant departure 
in the method of delivery from those previously offered. The interim 
final regulations do not modify these requirements, or add any new 
ones.
    Changes: None.
    Comments: While supporting our effort to draw a clear distinction 
between telecommunications and correspondence courses, one commenter 
thought that the language in the definition of telecommunications 
course was not specific enough to determine how much interactivity was 
sufficient. The commenter suggested that the definition be revised to 
include interaction among students and that we clarify that ``regular'' 
interaction means ``not trivial'' rather than ``at specific 
intervals.''
    Discussion: The primary purpose of revising the definition of 
telecommunications course was to draw a clear distinction between 
telecommunications and correspondence courses. In drawing this

[[Page 64379]]

distinction, we wanted to avoid as much as possible dictating a 
particular teaching method. The Secretary believes that requiring 
interaction among students, as well as between students and the 
instructor, would preclude certain teaching methods, such as self-paced 
instruction.
    We disagree with the commenter on the meaning of ``regular'' 
interaction. We believe the phrase ``regular and substantive'' means 
that the interaction should both take place at regular intervals and 
not be trivial.
    Changes: None.
    Comments: Two commenters representing financial aid administrators 
supported the change in the definition of the term telecommunications 
course but asked whether instruction by video cassette or disc 
recording would be considered to be telecommunications coursework.
    Discussion: We believe that the definition of telecommunications 
course adequately addresses the issue raised in the comments. The 
regulations provide that instruction by video cassette or disc 
recording is telecommunications coursework when the course involves the 
use of other telecommunications technologies for regular and 
substantive interaction between students and instructor, and when the 
course is offered onsite in the same award year. Otherwise, the use of 
video cassettes or disc recording is considered a correspondence 
course.
    Changes: None.

Distance Education (Sec. Sec.  600.2, 600.7, 600.51, 668.8 and 668.38)

    Comments: One commenter agreed that academic programs offered 
through any use of telecommunications or correspondence by foreign 
schools should not be eligible for Title IV, HEA program assistance.
    A few commenters did not believe that the HERA intended to deny 
eligibility under the Federal Family Education Loan (FFEL) Program to a 
student who physically attends a foreign school but takes a portion of 
his or her program through telecommunications classes. The commenters 
felt that it is unfair to bar from FFEL eligibility a student who could 
fulfill a program requirement only through telecommunications 
coursework because the class is not offered at the foreign school the 
student attends. One commenter suggested that U.S. military personnel 
deployed outside of the U.S. may need to take courses via 
telecommunications instruction as part of their program of study.
    The commenters recommended that the definition of an eligible 
program for a foreign school be modified to permit the inclusion of 
telecommunications courses. Specifically, the commenters suggested the 
definition be changed to include a program at a foreign school that 
requires on-site attendance in traditional classroom or lab settings in 
at least one class while permitting one or more additional 
telecommunications classes, while excluding a program at a foreign 
school that permits the student to attend courses solely via 
telecommunications instruction.
    Alternatively, the commenters suggested that the effective date of 
the regulations be changed to allow foreign schools to deliver second 
and subsequent disbursements of pending loans on or after July 1, 2006 
if the first disbursement was made prior to July 1, 2006.
    Discussion: The final regulations reflect the statutory 
requirements for an eligible program to include programs offered in 
whole or in part through telecommunications instruction by institutions 
in the United States with appropriate accreditation. The statute does 
not extend this eligibility to foreign schools and the Secretary does 
not have the authority to do so by regulation.
    In response to the comment regarding U.S. military personnel 
located abroad, it is the Secretary's understanding that such students 
do not usually attend foreign schools because they have access to 
programs offered by domestic institutions. Lastly, the effective date 
is established by the HERA and cannot be changed by regulation.
    Changes: None.

Academic Year (Sec.  668.3)

    Comments: One commenter suggested that the Secretary change the 
definition of an academic year so that institutions can use the same 
definition as they use for grade level in the Stafford Loan Program.
    Discussion: The definition of an academic year in Sec.  668.3 
reflects the statutory definition in section 481(a) of the HEA, and the 
Secretary cannot change that definition.
    Changes: None.

Direct Assessment Programs (Sec.  668.10)

    Comments: One commenter agreed that direct assessment programs 
offered at foreign schools should not be considered eligible for Title 
IV funding.
    Discussion: The Secretary appreciates the commenter's support.
    Changes: None.
    Comments: One commenter representing several higher education 
associations, and two commenters representing financial aid 
administrators, asked how the Department will evaluate satisfactory 
academic progress for direct assessment programs.
    Discussion: Students enrolled in direct assessment programs who are 
receiving Title IV HEA, program assistance must meet the same 
satisfactory academic progress requirements as do students attending 
other types of programs. However, since direct assessment programs may 
be designed in a variety of ways, we will determine how we will 
evaluate institutional compliance with satisfactory academic progress 
standards on a case-by-case basis as part of the initial eligibility 
review.
    Changes: None.
    Comments: One commenter thought that Sec.  668.10(a)(3) was 
intended to require an institution to develop a protocol for equating 
programs administered under direct assessment rules with clock hours 
for credit hour measurements, but that the text in the interim final 
regulations was unclear. The commenter suggested some revised language.
    Discussion: The commenter is correct about the intent of the 
regulations. We agree that the commenter's proposed revised language is 
clearer than the language in the interim final regulations.
    Changes: We have revised Sec.  668.10(a)(3) for clarity, but 
without changing the meaning.

Treatment of Title IV Funds When a Student Withdraws (Sec. Sec.  
668.22, 668.35, and 668.173)

Post-Withdrawal Disbursement Counseling
    Comments: Several commenters questioned why an institution must 
obtain the student's confirmation to apply loan funds to the student's 
account, but not to apply other Title IV program funds to that account. 
Several commenters questioned why an institution must obtain 
confirmation that a student wishes to receive grant funds as a direct 
disbursement. Commenters noted that the HERA provision that changed the 
post-withdrawal disbursement requirements addressed confirmation of 
receipt of loan funds, but not grant funds.
    Discussion: As in the past, Sec.  668.164(d)(1) and (d)(2) require 
an institution to obtain a student's authorization (or a parent's 
authorization in the case of a parent PLUS loan) to credit the 
student's account with any Title IV, HEA funds for charges other than 
tuition, fees, and room and board if the student contracts with the 
institution for other services.

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An institution may obtain such an authorization from a student or 
parent at any time. The HERA added a new provision that goes beyond the 
pre-existing requirements in Sec.  668.164(d)(1) and (d)(2) to require 
an institution to obtain confirmation from a student (or a parent in 
the case of a parent PLUS Loan) before making any post-withdrawal 
disbursement of loan funds. This confirmation cannot be made until the 
need for the post-withdrawal disbursement has been determined, i.e., 
after the student withdraws. This change ensures that a student or a 
parent has an opportunity after the student's withdrawal to decline all 
or a part of the loan, thus eliminating or reducing his or her loan 
debt. The Secretary did not add a similar change to the regulations for 
grant funds because she believes the requirements of Sec.  
668.164(d)(1) and (d)(2) are sufficient to control the application of 
grant funds to a student's account.
    The requirement in Sec.  668.164(g)(3)(i) that an institution 
obtain confirmation that a student wishes to receive a post-withdrawal 
direct disbursement of grant funds is not new. Students are provided 
with an opportunity to refuse direct disbursements of grant funds so 
that they may preserve the amount of their grant eligibility if they 
return to school within the award year.
    Changes: None.
    Comments: Several commenters felt that the interim final 
regulations did not clearly explain how the requirements in Sec.  
668.22 are applied in concert with the regulations for making a late 
disbursement (Sec.  668.164(g)(3)) and for notifying a student, or 
parent (for a parent PLUS Loan), to provide that student or parent an 
opportunity to cancel a loan when the institution credits the student's 
account with FFEL, Direct Loan, or Perkins Loan program funds (Sec.  
668.165(a)(2)). Many commenters believed a conforming amendment was 
needed to clarify whether Sec.  668.165(a)(2) applies in the case of a 
post-withdrawal disbursement.
    Discussion: The new confirmation requirements do not apply to late 
disbursements made to students who did not withdraw. Section 
668.164(g)(3)(i) requires an institution to make any post-withdrawal 
disbursement due to a student who withdraws during a payment period or 
period of enrollment in accordance with the new post-withdrawal 
disbursement procedures. However, the new post-withdrawal disbursement 
requirements do not apply to late disbursements made to students who 
successfully complete the payment period or period of enrollment (Sec.  
668.164(g)(3)(ii)) or to students who do not withdraw, but cease to be 
enrolled as at least half-time students (Sec.  668.164(g)(3)(iii)).
    The commenters are correct that a conforming amendment to Sec.  
668.165(a)(2) is necessary. For students who withdraw and are due a 
post-withdrawal disbursement, the new post-withdrawal disbursement 
procedures in Sec.  668.22 supersede the provisions in Sec.  
668.165(a)(2) that require an institution to notify a student or parent 
of loan funds that are credited to a student's account. Because the new 
post-withdrawal disbursement procedures require an institution to 
obtain a student's confirmation (or a parent's confirmation in the case 
of a parent PLUS Loan), the institution does not have to notify the 
student or parent again when the institution credits the loan funds to 
the student's account after it receives the borrower's confirmation. 
The notification requirement in Sec.  668.165(a)(2) still applies in 
all other cases when an institution credits loan funds to a student's 
account.
    Changes: The Secretary has revised Sec.  668.165(a)(2) to make it 
clear that an institution is not required to notify a student or parent 
of loan funds that are credited to a student's account for students who 
withdraw and are due a post-withdrawal disbursement.
    Comments: Several commenters noted that requiring an institution to 
provide notification of the outcome of a post-withdrawal disbursement 
request ``electronically or in writing'' is redundant, because ``in 
writing'' means through conventional mailing methods or electronically.
    Discussion: The commenters are correct.
    Changes: The reference to electronic notification has been removed 
from Sec.  668.22(a)(5)(iii)(E).
Withdrawals From Clock Hour Programs
    Comments: One commenter supported the new regulatory provisions 
governing the Return of Title IV Funds in the case of clock hour 
programs. One commenter felt that the regulations should allow an 
institution to determine the percentage of aid earned by a student who 
withdraws and has completed more clock hours than he or she was 
scheduled to complete by using the completed hours, rather than the 
scheduled hours. The commenter noted that this was consistent with the 
previous policy for students withdrawing from clock-hour programs.
    Discussion: Prior to the enactment of the HERA, either completed 
hours or scheduled hours were used to determine earned aid for a 
student who withdrew from a clock-hour program. However, the HERA 
changed the law to allow the use of scheduled hours only.
    Changes: None.
Grant Overpayment Requirements
    Comments: One commenter suggested that the regulations be modified 
to clarify that the provision that a student is not required to return 
an original grant overpayment amount of $50 or less applies on a Title 
IV, HEA program-by-program basis.
    Discussion: The Secretary agrees with the commenter.
    Changes: Section 668.22(h)(3)(ii)(B) has been revised to make it 
clear that the provision that a student is not required to return an 
original grant overpayment amount of $50 or less applies on a Title IV, 
HEA program-by-program basis.
    Comments: Several commenters asked the Department to raise to $50 
the $25 de minimis amount for overpayments in the Academic 
Competitiveness Grant (ACG) and National SMART grant programs and other 
Title IV programs to match the de minimis grant overpayment amount for 
students who withdraw, which was raised to $50 by the HERA.
    Discussion: The Secretary does not agree that the amounts should 
correspond. The $25 de minimis standard used in the regulations is 
based upon the Department's determination of the amount that is cost 
effective for the Department to collect on outstanding balances owed to 
the Department. We are able to successfully pursue collections of $25 
or higher with Internal Revenue Service (IRS) offsets and other 
methods.
    Changes: None.
Waiver of Grant Overpayment for Students Affected by a Disaster
    Comments: One commenter felt that the regulatory language applying 
the waiver of grant overpayment for students affected by a disaster to 
students ``whose withdrawal ended within the award year during which 
the designation occurred or during the next succeeding award year'' was 
unclear. The commenter asked the Secretary to clarify that students 
remain eligible for the grant overpayment waiver even if they do not 
return to the same institution in the following year.
    Discussion: An otherwise eligible student qualifies for the waiver 
if he or she withdraws during the award year during which the major 
disaster designation occurred or during the next succeeding award year, 
if the student withdrew because of the major disaster.
    Changes: Section 668.22(h)(5)(iii) has been revised to clarify that 
the grant

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overpayment waiver applies to students whose withdrawal due to a 
disaster occurred, rather than ended, within the award year during 
which the designation occurred or during the next succeeding award 
year.
Order of Return of Grant Funds
    Comments: One commenter felt that the regulations should be changed 
to make it clear that an institution will not have to return funds to 
both the ACG and National SMART Grant programs for the same withdrawal.
    Discussion: Because an institution may opt to use the period of 
enrollment, rather than the payment period, to perform a Return of 
Title IV Funds calculation for a student who withdraws from a non-
standard term or non-term program, it is possible, although highly 
unlikely, that both an ACG and a National SMART Grant could be 
disbursed (or scheduled to be disbursed) to a student for the same 
period. In such a case, funds from both the ACG and National SMART 
Grant programs may need to be returned for the same withdrawal.
    Changes: None.
Return of Funds Within 45 Days
    Comments: One commenter felt that the Secretary should extend the 
other deadlines under Sec.  668.22 from 30 days to 45 days to 
correspond to the extension of the maximum amount of time an 
institution has to return unearned funds for which it is responsible. 
The commenter felt this extension should also be applied to 
notifications to students for post-withdrawal disbursements and 
notifications to students of Title IV grant overpayments resulting from 
withdrawal. The commenter asserted that a uniform deadline makes sense 
because the same Return of Title IV Funds process leads up to all three 
requirements, and consistency would help ensure compliance.
    Discussion: Institutions have previously indicated that they needed 
an extension of the former 30-day return deadline to provide additional 
time to perform the administrative functions necessary to return the 
funds. The actual calculation of earned funds is not time consuming. 
The Secretary believes that providing institutions with over four weeks 
to enter information from their records and calculate the amount to be 
returned is more than sufficient.
    With regard to the request that the Secretary extend the 30-day 
deadlines for notifications to students, the Secretary does not believe 
it is in the best interest of students to extend these deadlines merely 
for consistency's sake. The Secretary believes that the sooner an 
institution attempts to contact these students, the more likely it is 
that the institution will reach the students.
    Changes: None.

Student Debts Under the HEA and to the U.S. (Sec.  668.35)

    Comments: Several commenters suggested that Sec.  668.35(e)(3), 
which governs the amount of an overpayment that renders a student 
ineligible for additional Title IV, HEA program assistance, be changed 
from $25 to $50 to be consistent with the new statutory requirement 
governing repayment of grant funds under the return of Title IV aid 
provisions.
    Discussion: The Secretary disagrees with the commenters. In 2002, 
we published final regulations to make the treatment of overpayments 
consistent in the Title IV, HEA programs, including incorporating the 
de minimis amount concept that applied to grant overpayments under the 
return to Title IV aid requirements. We decided to use the $25 de 
minimis standard for consistency and simplicity, and because it is cost 
effective. We do not believe it is appropriate to raise the de minimis 
amount applicable to overpayments when the Department has the tools and 
resources available to collect these amounts.
    However, as a result of the change in the minimum amount of a grant 
repayment for which a student is responsible under the return of Title 
IV aid provisions from $25 to $50, we are amending Sec.  668.35(e) to 
clarify that a student who owes a grant overpayment of $50 or less that 
is not a remaining balance and is a result of the return of Title IV 
aid calculation is eligible to receive additional Title IV, HEA program 
assistance.
    Changes: We have added a new paragraph (4) to Sec.  668.35(e) to 
clarify that a student who owes a grant overpayment of $50 or less 
under the circumstances explained above is eligible to receive 
additional Title IV, HEA program assistance.

Estimated Financial Assistance (Sec. Sec.  673.5, 682.200, and 685.102)

    Comments: One commenter suggested that we add benefits paid under 
Section 903 of Pub. L. 96-342 (Educational Assistance Pilot Program) 
that is currently in the definition of estimated financial assistance 
in Sec. Sec.  682.200(b) and 685.102(b) to the definition of estimated 
financial assistance in Sec.  673.5(c). The commenter also suggested 
that we add language in Sec.  682.200(b)(1)(iv), which includes in the 
definition of estimated financial assistance benefits paid under the 
Veteran's Affairs Educational Assistance Pilot Program and language 
from Sec.  685.102(b)(2)(ii), which excludes from estimated financial 
assistance the amounts of Federal Perkins Loan and Federal Work-Study 
funds that the student has declined.
    Another commenter requested that the definition of estimated 
financial assistance in all three sections be modified to exclude any 
alternative or private loans not certified by the institution. This 
commenter suggested that only those loans that the institution is aware 
the student is receiving should be included in the definition of 
estimated financial assistance. An additional, similar comment was 
received suggesting that language be added to the definitions in all 
three sections to specifically state that only benefits that an 
institution is aware of must be considered estimated financial 
assistance.
    Discussion: Although the list of individual veterans' education 
benefits in each of the three sections that define estimated financial 
assistance is not all inclusive, the Secretary agrees with the first 
commenter that, for consistency, benefits paid under section 903 of 
Pub. L. 96-342 (Educational Assistance Pilot Program) should be 
included in Sec.  673.5(c). However, it would be redundant to 
specifically exclude from the definition of estimated financial 
assistance in Sec.  673.5(c) the amounts of Federal Perkins Loan and 
Federal Work-Study funds that the student has declined. Section Sec.  
673.5 defines the term estimated financial assistance for the purpose 
of determining eligibility for campus-based funds. It would not make 
sense to exclude campus-based funds declined by a student from the list 
of items used to determine that student's eligibility for those campus-
based funds. If a student declines funds from a campus-based program, 
the amount of those declined funds would not be used to determine 
eligibility for campus-based funds.
    With respect to the proposal to define estimated financial 
assistance as including only loans of which the institution is aware, 
we note that, under the administrative capability guidelines in Sec.  
668.16(b) and (f), an institution must have a mechanism in place for 
obtaining and reviewing all information it receives that has a bearing 
on a student's eligibility for Title IV, HEA assistance. The 
institution must communicate this information to the individual 
designated to administer the Title IV programs at the institution. In 
light of this requirement, we believe that it is unlikely that a 
student will be

[[Page 64382]]

receiving loans of which the institution is not aware.
    Changes: The definition of estimated financial assistance in Sec.  
673.5(c)(1)(ix) has been revised to include benefits paid under section 
903 of Pub. L. 96-342 (Educational Assistance Pilot Program). A 
technical change has also been made to correct the reference in Sec.  
685.102(b)(1)(ix) from ``paragraph (2)(iii)'' to ``paragraph (2)(iv)''.

Military Deferment (Sec. Sec.  674.34, 682.210(t), 682.211(i) and 
685.204)

    Comments: One commenter recommended that we extend eligibility for 
the new military deferment established by the HERA to Perkins Loans 
disbursed before July 1, 2001 if the borrower received at least one 
Perkins Loan first disbursed on or after July 1, 2001.
    Discussion: Section 8007(f) of the HERA specifies that the military 
deferment applies to loans ``for which the first disbursement is made 
on or after July 1, 2001.'' The Secretary does not have the authority 
to extend eligibility for the military deferment to loans for which the 
first disbursement was made before July 1, 2001.
    Changes: None.
    Comments: Some commenters asked if a qualified borrower who 
experiences multiple deployments could receive separate deferments for 
each of his or her eligible Perkins, FFEL and Direct Loan program 
loans, as long as each deferment period did not last longer than the 
three-year maximum.
    Discussion: The three-year maximum for the military deferment 
applies to each loan, not to the borrower. If a borrower receives a 
military deferment on a loan for three years, or receives multiple 
military deferments on a loan that add up to three years, that loan no 
longer qualifies for a military deferment. If the borrower goes back to 
school, obtains more Title IV loans, and then is called back to active 
duty, the new loans would qualify for up to three years of military 
deferment. However, the older loan that has already been in a military 
deferment for the three-year maximum would not qualify for a military 
deferment.
    Changes: None.
    Comments: Several commenters recommended that we confirm that a 
lender has the authority to grant a mandatory administrative 
forbearance, as provided for in Sec.  682.211(i), on a borrower's pre-
July 1, 2001 loans, if the borrower qualifies for a military deferment 
on loans that were first disbursed on or after July 1, 2001.
    Discussion: FFEL lenders are required to grant mandatory 
administrative forbearances when notified by the Secretary that 
exceptional circumstances exist, such as a local or national emergency 
or a military mobilization. Some borrowers may qualify for a military 
deferment on loans first disbursed on or after July 1, 2001 and also 
may qualify for a mandatory administrative forbearance on loans first 
disbursed before July 1, 2001. However, not all borrowers who qualify 
for a military deferment necessarily qualify for a mandatory 
administrative forbearance.
    Changes: None.
    Comments: Several commenters recommended that we change the name of 
the prior military deferment that is available to borrowers with loans 
made before July 1, 1993, to the ``Armed Forces deferment'', to avoid 
confusion with the new military deferment enacted by the HERA.
    Discussion: The FFEL and Direct Loan Public Service Deferment 
Request forms do not use the term ``military deferment'' to refer to 
the pre-July 1, 1993 military deferment mentioned in the comments. 
Instead, these forms refer to borrowers who are ``on active duty in the 
Armed Forces of the United States.'' These forms are the primary source 
of information to borrowers on the prior military deferment. 
Accordingly, we do not believe that there will be any significant 
confusion among borrowers. Moreover, we believe that re-naming the old 
military deferment in the regulations serves no purpose.
    Changes: None.

Perkins Loan Rehabilitation (Sec.  674.39)

    Comments: One commenter questioned the statutory basis for denying 
a borrower who has been convicted of, or has pled nolo contendere or 
guilty to, a crime involving fraud in obtaining the Perkins Loan the 
opportunity to rehabilitate the defaulted Perkins Loan. The commenter 
questioned the statutory basis for denying loan rehabilitation to such 
borrowers. The commenter also contended that institutions have no 
reasonable way of knowing whether a borrower has been convicted of, or 
has pled nolo contendere or guilty to, a crime involving fraud in 
obtaining a Perkins Loan.
    Discussion: Section 8021(a) of the HERA provides that a student who 
has been convicted of, or has pled nolo contendere or guilty to a crime 
involving fraud in obtaining Title IV, HEA program assistance is not 
eligible for additional Title IV assistance unless he or she has repaid 
the fraudulently obtained Title IV aid. If a borrower were permitted to 
rehabilitate a fraudulently obtained Perkins Loan under Sec.  674.39 of 
the Perkins Loan program regulations, the borrower would regain 
eligibility for additional Title IV, HEA program assistance without 
having repaid the fraudulently obtained loan in full, as required by 
the HERA.
    We do not agree with the commenter's contention that an institution 
will not know if a borrower was found guilty of fraud. The institution 
would almost certainly be involved in any legal proceedings relating to 
a Perkins Loan that was fraudulently obtained from that institution.
    Changes: None.

Definition of Satisfactory Repayment Arrangement (Sec. Sec.  682.200 
and 685.102)

    Comments: Several commenters pointed out that the standard for an 
on-time payment for purposes of rehabilitating a loan is now different 
from the standard for an on-time payment for purposes of making 
satisfactory repayment arrangements on a defaulted loan to regain Title 
IV, HEA program assistance eligibility. Under the rehabilitation rules, 
an on-time payment is a payment made within 20 days of the due date. 
Under the satisfactory repayment arrangement rules, an on-time payment 
is a payment made within 15 days of the due date. Since some borrowers 
make satisfactory repayment arrangements and attempt loan 
rehabilitation concurrently, the commenters recommended using within 20 
days of the due date as the on-time standard for both purposes.
    Discussion: The making of six consecutive monthly payments under 
satisfactory repayment arrangements restores Title IV, HEA program 
assistance eligibility to a defaulted borrower. We believe that the 
standard for on-time payments for purposes of regaining eligibility for 
Title IV, HEA program assistance should be stricter than the standard 
for rehabilitation of a defaulted loan. In addition, the on-time 
payment standard for borrowers who are in a regular repayment status 
requires that the payments be made within 15 days of the due date. We 
do not believe that it is appropriate to provide a longer period for 
on-time payments for borrowers who are in default on their loans than 
for borrowers who are current on their loans. Borrowers in default 
should be held to an on-time standard that is at least as strict as the 
standard applied to current borrowers, not rewarded with extra time to 
make a payment. Finally, we note that Congress did not apply the 20-day 
standard adopted for the loan rehabilitation program to borrowers in 
other situations.

[[Page 64383]]

    Changes: None.

Eligible Borrower (Sec. Sec.  682.201 and 685.200)

    Comments: Two commenters recommended adding language to Sec. Sec.  
682.201 and 685.200 to provide that a student borrower is not eligible 
for Title IV, HEA program assistance unless the borrower has repaid any 
Title IV, HEA program assistance obtained by fraud, if the student has 
been convicted of, or has pled nolo contendere or guilty to, a crime 
involving fraud in obtaining Title IV, HEA program assistance. These 
commenters also recommended that we revise Sec.  682.201 to list the 
general eligibility requirements for all borrowers, and then the 
requirements that are specific to each loan type. The commenters felt 
that this approach would be more efficient and eliminate unnecessary 
redundancies.
    Discussion: The interim final regulations in Sec. Sec.  668.32(m) 
and 668.35(i) include the new eligibility provision that prohibits a 
student borrower from obtaining Title IV, HEA program assistance unless 
the borrower has repaid any Title IV, HEA program assistance obtained 
by fraud. Section 682.201(a) and (b) of the FFEL regulations stipulate 
that a Stafford Loan borrower and a student PLUS borrower, 
respectively, must meet the eligibility requirements in 34 CFR part 668 
to qualify for a Stafford Loan. Similar references to the eligibility 
requirements in 34 CFR part 668 are in Sec.  685.200(a)(1)(ii) and 
685.200(b)(1)(ii) of the Direct Loan regulations. We believe that it 
would be redundant to include the language regarding the student 
eligibility requirements already outlined in part 668 in Sec. Sec.  
682.201 and 685.200.
    We disagree with the suggestion that restructuring Sec.  682.201 
would be more efficient. In developing the interim final regulations, 
we determined that the most efficient and easily understandable way to 
incorporate the changes mandated by the HERA into Sec.  682.201 was to 
fit the changes into the existing structure of this section. We believe 
that it is easier to identify changes that we have made to a section if 
the overall structure of the section remains consistent with past 
versions of that section. Although some redundancy is unavoidable with 
this approach, we have reduced the redundancies through the use of 
cross-references.
    Changes: None.
    Comments: Several commenters noted that a student borrower may 
receive a Federal Direct Subsidized Stafford/Ford Loan or a Federal 
Direct Unsubsidized Stafford/Ford Loan and a FFEL Program Student PLUS 
Loan for the same period of enrollment. These commenters recommended 
revising the PLUS loan student eligibility requirements in both the 
FFEL and Direct Loan programs, to stipulate that a graduate or 
professional student's annual loan maximum eligibility for either a 
FFEL Stafford Loan or a Direct Stafford/Ford Loan, as applicable, must 
be determined before awarding the student a PLUS Loan.
    Discussion: The Secretary has previously issued guidance stating 
that a graduate or professional student's maximum annual Stafford Loan 
eligibility must be determined before the student applies for a PLUS 
Loan, although the student is not first required to borrower up to his 
or her maximum annual Stafford Loan limit before receiving a PLUS Loan. 
If a school participates in both the FFEL and Direct Loan programs, the 
school must determine the borrower's maximum annual Stafford Loan 
eligibility under the program the school is participating in for 
Stafford Loan purposes. We agree that this guidance should be 
incorporated in the regulations.
    Changes: We have revised Sec. Sec.  682.201(b)(3) and 
685.200(b)(1)(iv) to specify that a graduate or professional student's 
maximum annual Stafford Loan eligibility under either the Direct Loan 
or FFEL program must be determined before the student applies for a 
PLUS Loan.
    Comments: Two commenters recommended that Sec.  682.201(d)(1) be 
revised to stipulate that a borrower who obtained a loan by identity 
theft or some other illegitimate means, or who obtained a loan for 
which he or she was ineligible, may not consolidate that loan. In 
addition, these commenters recommended that these borrowers not be 
permitted to consolidate loans for which the borrower is eligible until 
the loans for which the borrower was ineligible have been paid in full. 
Several commenters noted that new Sec.  682.201(d)(2) states that a 
borrower may not consolidate a loan for which the borrower is wholly or 
partially responsible. Because our revision stipulating that a borrower 
who obtained a loan by identity theft or some other illegitimate means, 
or who obtained a loan for which he or she was ineligible, may not 
consolidate that loan was unclear, several commenters asked if the word 
``not'' was inadvertently dropped from this section.
    Discussion: Section 682.201(d)(2) of the interim final regulations 
should have read, ``A borrower may not consolidate a loan under this 
section for which the borrower is wholly or partially ineligible.'' 
This language mirrors the existing provisions in Sec.  685.211(e)(4) of 
the Direct Loan regulations. The revised Sec.  682.201(d)(2) precludes 
a borrower who obtained a Title IV loan by identity theft, fraud, or 
some other illegitimate means from consolidating the ineligible loan. 
However, we do not believe that the HERA prohibits a borrower who has 
obtained loans for which the borrower is ineligible from consolidating 
loans for which the borrower is eligible, and we do not believe we have 
the authority to impose such a restriction by regulation. We believe 
the revision to Sec.  682.201(d)(2) adequately addresses commenters' 
concerns and that revising Sec.  682.201(d)(1) is unnecessary.
    Changes: We have replaced ``responsible'' with ``ineligible'' in 
Sec.  682.201(d)(2).

Eligibility for a Direct Consolidation Loan (Sec. Sec.  682.201, 
685.100 and 685.220)

    Comments: Two commenters recommended that we amend the FFEL and 
Direct Loan program regulations to clarify that, in the case of a 
borrower who wishes to consolidate a Federal Consolidation Loan that 
has been submitted for default aversion into the Direct Loan Program, 
the borrower must be delinquent or in default on the Federal 
Consolidation Loan at the time the borrower applies for the Direct 
Consolidation Loan. The commenters believed that the current regulatory 
language would allow a borrower to consolidate a Federal Consolidation 
Loan on which the borrower is current on making payments into a Direct 
Consolidation Loan, if the Federal Consolidation Loan had been 
submitted for default aversion at some time in the past.
    Discussion: We agree that Federal Consolidation Loans that are 
currently delinquent or in default may be consolidated into a Direct 
Consolidation Loan. However, we do not believe that it is necessary to 
amend the current regulatory language in Sec. Sec.  682.201, 685.100 
and 685.220 to state this requirement more explicitly.
    Changes: None.
    Comments: Several commenters urged the Secretary to clarify that 
borrowers with defaulted Federal Consolidation Loans are eligible to 
consolidate into the Direct Loan Program, without including another 
eligible loan, for the purpose of obtaining an income contingent 
repayment (ICR) plan. Section 428C(a)(3)(B)(i)(IV) of the HEA provides 
this option for borrowers with delinquent Federal Consolidation Loans 
that have been submitted to the guaranty agency for default aversion. 
The commenters believed that this

[[Page 64384]]

provision of the law, which was added by the HERA, was intended to 
provide the ICR option to borrowers who are either seriously delinquent 
or in default on their Federal Consolidation Loans. They also noted 
that the statutory language does not distinguish between non-defaulted 
and defaulted borrowers, and that any default claim filing would have 
been preceded by a default aversion submission.
    Discussion: The commenters are correct in reading the regulations 
implementing the changes made to section 428C(a)(3)(B)(i)(IV) of the 
HEA to allow a borrower to consolidate a single defaulted Federal 
Consolidation Loan into the Direct Loan Program for the purpose of 
obtaining an ICR plan. We believe that the regulatory language is 
sufficiently clear and that it is not necessary to revise the 
regulations to state this more explicitly.
    An otherwise eligible borrower may also consolidate a single 
Federal Consolidation Loan into the Direct Loan Program for the purpose 
of obtaining an income contingent repayment plan if the borrower has 
filed an adversary complaint in a bankruptcy proceeding seeking to have 
the Federal Consolidation Loan discharged, regardless of whether that 
Federal Consolidation Loan is current, delinquent, or in default. A 
borrower who is seeking to have a Federal Consolidation Loan discharged 
in bankruptcy should be treated the same as a borrower whose loan has 
been submitted for default aversion. A borrower who seeks to have a 
loan discharged in bankruptcy is clearly stating his or her intent not 
to repay the loan, but the bankruptcy filing precludes the submission 
of a default aversion request. Offering the Direct Loan Program ICR 
option to such a borrower provides an alternative to having the loan 
discharged in bankruptcy.
    Changes: None.

Permissible Charges by Lenders to Borrowers (Sec.  682.202(a))

    Commments: One commenter urged the Department to develop and 
publish regulations to restrict a lender's ability to charge an FFEL 
Program borrower an interest rate that is less than the rate specified 
in the HEA and the program regulations. The commenter believes that the 
regulations should require lenders to charge all borrowers the same 
rate to stop lenders from using interest rates to discriminate between 
institutions and borrowers based on inequitable criteria or to 
eliminate competition in the student lending market.
    Discussion: Section 427A(l) of the HEA provides that nothing shall 
prohibit a lender from charging a borrower an interest rate less than 
the rate specified in the statute. Accordingly, we do not have the 
statutory authority to require lenders to charge all borrowers the same 
interest rate.
    Changes: None.

Insurance Premium and Federal Default Fees (Sec. Sec.  682.202(d)(2) 
and 682.401(b)(10))

    Comments: One commenter stated that the changes made to Sec. Sec.  
682.202(d)(2) and 682.401(b)(10) in the interim final regulations 
appear to eliminate the authority of a lender or guaranty agency, under 
Sec.  682.209(f)(4), to charge a guarantee fee to a borrower who is 
refinancing a fixed rate PLUS Loan or a Supplemental Loans for Students 
(SLS) Loan made prior to July 1, 1987 under Sec.  682.209(f)(1). The 
commenter believes that the HERA provisions that changed the optional 
insurance premium to a mandatory Federal default fee did not remove a 
lender's or guaranty agency's authority to charge a guarantee fee in 
these cases.
    Discussion: We agree that the HERA did not remove a lender's or 
guaranty agency's authority to charge a guarantee fee if a borrower 
refinances a fixed rate PLUS or SLS loan made prior to July 1, 1987. 
However, we believe the existing language in Sec.  682.209(f)(4), which 
specifically states that the refinancing lender may charge the borrower 
a guarantee fee in these circumstances, already addresses this issue.
    Changes: None.

Loan Disbursement Through an Escrow Agent (Sec. Sec.  682.207(b)(1)(iv) 
and 682.408(c))

    Comments: Many commenters noted that the discussion in the preamble 
of the interim final regulations related to the new 10-day deadline for 
a lender to pay funds to an escrow agent for disbursement to a school 
differed from the regulatory language and requested clarification. The 
commenters indicated that the preamble stated that the transfer of loan 
funds must take place no earlier than 10 days prior to disbursement to 
the borrower, while the regulations indicated that the 10 days referred 
to the transfer of the loan funds to the school prior to the school's 
delivery of the funds to the borrower. A couple of commenters indicated 
that an additional change was needed to Sec.  682.408(c)(2) to reflect 
the reduction from 21 to 10 days for disbursement through an escrow 
agent. Several commenters also recommended that Sec.  682.408(c) be 
revised to provide that an escrow agent, as the lender's agent, could 
disburse loan funds directly to a borrower in a study-abroad program at 
the borrower's request.
    Discussion: We agree with the commenters that there is a difference 
between the discussions of the 10-day period in the preamble and in the 
interim final regulations. The language in the interim final 
regulations that states that the escrow agent shall transmit loan 
proceeds received from a lender to a school not later than 10 days 
after the agent receives the funds from the lender accurately reflects 
our policy on this issue.
    A revision to Sec.  682.408(c)(2) reflecting the reduction from 21 
to 10 days for disbursement through an escrow agent is unnecessary. 
Paragraph (c)(2) of Sec.  682.408 was incorporated into new Sec.  
682.408(c) in the interim final regulations and the reduction from 21 
to 10 days for disbursement through an escrow agent is reflected in 
this new paragraph.
    We agree with the commenters who recommended that Sec.  682.408(c) 
be revised to provide that an escrow agent, as the lender's agent, 
could disburse loan funds directly to a borrower in a study-abroad 
program at the borrower's request.
    Changes: We have amended Sec.  682.408(c) to clarify that an escrow 
agent may disburse Stafford Loan proceeds directly to a borrower who is 
attending a study-abroad program and who requests a direct disbursement 
from the lender.

Due Diligence in Disbursing a Loan (Sec. Sec.  682.207 and 682.604)

    Comments: Several commenters disagreed with our determination that 
PLUS Loan funds cannot be disbursed directly to a borrower enrolled in 
a study-abroad program or at a foreign school. The commenters believed 
that the ``same terms and conditions'' provision in section 428B(a)(2) 
of the HEA permits retention of the prior policy allowing direct 
disbursement of PLUS Loan funds. The commenters noted that, while the 
PLUS funds check must still be made co-payable to the institution and 
the borrower under 428B(c)(2) of the HEA, disbursing funds directly to 
a borrower to be endorsed and mailed to an institution may assist 
borrowers in paying for expenses while traveling to a foreign school.
    Discussion: Section 428B(a)(2) of the HEA does not authorize the 
Secretary to establish disbursement rules for PLUS Loans made to pay 
for attendance at foreign institutions or for students enrolled in 
study-abroad programs that

[[Page 64385]]

are different from the rules for other FFEL Loans for attendance at 
those institutions.
    Changes: None.
    Comments: One commenter suggested that the regulations in Sec.  
682.207(b)(1)(v)(C)(1) be revised to clarify that a lender or guaranty 
agency must verify a student's enrollment with the home institution, 
rather than with the foreign school, before making a direct 
disbursement to a student in a study-abroad program.
    Discussion: The Secretary agrees with the commenters.
    Changes: Section 682.207(b)(1)(v)(C)(1) has been revised to clarify 
that a lender or guaranty agency may make a disbursement directly to a 
student enrolled in a study-abroad program only after verification of 
the student's enrollment with the home institution.
    Comments: One commenter did not agree that a lender or guaranty 
agency should be required to verify that a continuing student is still 
enrolled at the enrollment status for which the loan was certified 
before making a disbursement of Stafford Loan funds directly to a 
student at a foreign school. The commenter noted that, although the 
preamble stated that the verification requirements in the regulations 
are based on those in Dear Colleague Letter (DCL) G-03-348, this 
requirement differs from that in the DCL, which simply required 
verification that the student was accepted for enrollment at the 
foreign school. The commenter felt that the institution should be 
responsible for notifying the lender if the borrower's enrollment 
status changed to less than half-time.
    A couple of commenters did not believe that the regulations should 
limit how a lender or guaranty agency may contact a foreign school or 
home institution to verify enrollment. The commenters felt that other 
forms of contact, in addition to contact by telephone or e-mail, such 
as facsimile, should be acceptable.
    One commenter was concerned that the regulations do not specify who 
at a foreign school may authorize a disbursement to be sent directly to 
a borrower. The commenter felt that this gap left the process open to 
abuse.
    Discussion: The intent of the statutory requirement is to require a 
confirmation that a student who is attending or plans to attend a 
foreign school is actually eligible to receive FFEL funds when those 
funds will not be sent to the school, but will be disbursed directly to 
a student. Therefore, we believe it is appropriate to require a lender 
or guaranty agency to confirm that a continuing student's enrollment 
(at least half-time) supports eligibility for the loan disbursement. As 
the commenter noted, a change in enrollment status would affect a 
student's eligibility for a loan only if the student has dropped below 
half-time enrollment. Therefore, the lender or guaranty agency need 
only confirm that the student is still enrolled at least half-time.
    Because of concerns with timeliness and security, the Secretary 
does not believe that all forms of contact are appropriate for the 
verification of enrollment. However, the Secretary does agree that 
contact by facsimile is acceptable.
    The Secretary agrees that not just any individual at a foreign 
school should be permitted to authorize a disbursement directly to a 
student. In DCL GEN-06-11, the Department asked foreign schools to use 
the modified institutional eligibility electronic application (EAPP) to 
enter the names of the individuals who are authorized by the school to 
certify FFEL Loan applications. The DCL noted that the Department 
expects guaranty agencies or lenders to contact these individuals, 
whose names will be accessible in the Department's Postsecondary 
Education Participants Systems (PEPS), to verify enrollment. To the 
extent that a foreign school notifies a guaranty agency or lender of 
other individuals who are authorized to provide this information, the 
guaranty agency or lender must verify the information with at least one 
of the persons entered by the school on the EAPP that those officials 
are authorized to act on behalf of the institution in administering the 
FFEL Program. To allow the Secretary the flexibility to change this 
process in response to possible systems changes, the Secretary does not 
believe that the procedures for this contact should be specified in the 
regulations. However, the Secretary has decided that the regulations 
should require guaranty agencies and lenders to contact foreign schools 
in accordance with any procedures specified by the Department.
    Changes: Section 682.207(b)(2)(i) has been revised to permit a 
lender or guaranty agency to contact a foreign school via facsimile to 
verify a student's enrollment. In addition, Sec.  682.207(b)(2)(i)(A) 
has been changed to require guaranty agencies and lenders to contact 
foreign schools in accordance with any procedures specified by the 
Secretary.

Parental Leave and Working Mother Deferments (Sec. Sec.  682.210(o) and 
(r) and 685.204(d)(2))

    Comments: Many commenters asked whether the deletion of section 
428(b)(7)(A)(ii) from the HEA by the HERA effectively eliminated the 
parental leave and working mother deferments for borrowers with loans 
disbursed before July 1, 1993. The commenters are concerned that these 
deferments will not be available to an otherwise eligible borrower 
because the borrower must waive up to one month of the borrower's grace 
period in order to meet the eligibility criteria for the deferment.
    Discussion: The requirement that a borrower waive at least one 
month of the grace period so the borrower may be certified as having 
been enrolled at least half time within the six-month period preceding 
the deferment start date in Sec.  682.210(o) applies only to the 
parental leave deferment. Deferments are a term and condition of the 
borrower's promissory note. The Congress, in making changes to the HEA 
historically, has not eliminated deferments already granted to a 
borrower as a term and condition of the borrower's loan, and it does 
not appear that Congress intended to do so in this case. Accordingly, 
otherwise eligible borrowers may continue to waive a month of the grace 
period, if necessary, in order to qualify for the parental leave 
deferment.
    Changes: None.

Forbearance (Sec.  682.211)

    Comments: Several commenters suggested that we eliminate Sec.  
682.211(h)(3) of the FFEL regulations because section 8014(e) of the 
HERA amended the HEA to remove the requirement that the terms of a 
mandatory forbearance be in writing.
    Discussion: While we agree that the HERA eliminated the requirement 
that the terms of a mandatory forbearance agreement be in writing, we 
also note that the HERA requires that the terms of a mandatory 
forbearance agreed to by the lender and the borrower or endorser be 
documented by a confirmation notice sent by the lender to the borrower/
endorser and by the lender recording the terms in the borrower's file. 
We believe that, with the exception of administrative forbearances in 
Sec.  682.211(f), the same procedures should apply to all the 
forbearances. The interim final regulations amended Sec.  682.211(b)(1) 
to reflect the new forbearance requirements. We believe that Sec.  
682.211(h)(3) should also be changed to reflect the new requirements 
that the lender send a notice to the

[[Page 64386]]

borrower/endorser and include a notation in the borrower's file 
confirming the forbearance rather than simply eliminating the 
requirement for a written forbearance agreement.
    Changes: We have amended Sec.  682.211(h)(3) to reflect these 
changes.

Teacher Loan Forgiveness (Sec. Sec.  682.215(c) and 685.217(c))

    Comments: One commenter noted that the use of the word ``either'' 
with regard to a borrower qualifying for teacher loan forgiveness based 
on teaching special education in ``either an eligible elementary or 
secondary school'' could be misinterpreted. The commenter recommended 
removing the word ``either'' to make it clear that a borrower could 
combine teaching service in an eligible elementary school and an 
eligible secondary school to qualify for teacher loan forgiveness as a 
highly qualified special education teacher.
    Discussion: Use of the word ``either'' was not intended to imply 
that service as a highly qualified special education teacher in an 
eligible elementary school and service as a highly qualified special 
education teacher in an eligible secondary school could not be combined 
to qualify a borrower for teacher loan forgiveness.
    Changes: We have removed the word ``either'' from Sec. Sec.  
682.215(c)(3)(ii)(B), 682.215(c)(4)(ii)(B), 685.217(c)(3)(ii)(B), and 
685.217(c)(4)(ii)(B).

Payment of Special Allowance on FFEL Loans (Sec.  682.302)

    Comments: One commenter asked us to clarify the effective date for 
the change made by the HERA to the calculation of special allowance 
payments for PLUS Loans.
    Discussion: As reflected in the interim final regulations, PLUS 
Loans made after January 1, 2000 are no longer subject to the minimum 9 
percent trigger for special allowance payments. In accordance with the 
effective date for the provision of the HERA that made this change, 
lenders will be paid special allowance on these loans for activity 
beginning April 1, 2006, which will be reflected on billing reports 
submitted to the Department after June 30, 2006.
    Changes: None.
    Comments: Some commenters, particularly from the FFEL industry, 
claimed that the regulations are impermissibly retroactive. In 
particular, these commenters claimed that the interim final regulations 
improperly applied the statutory changes made by the Taxpayer-Teacher 
Protection Act of 2004 (TTPA), and the HERA, to periods before those 
statutes became effective. The commenters pointed to the explanation of 
certain terms in Sec.  682.302(f) as an example of the changes that 
they felt were being improperly applied retroactively.
    Discussion: The changes made to Sec.  682.302 are not retroactive. 
Prior to the publication of the August 9 interim final regulations, the 
regulatory provisions in Sec.  682.302 had not been updated since 1994, 
except for a change to reflect the 1993 statutory amendment that 
eliminated the 9.5 percent minimum special allowance payment (SAP) rate 
on loans acquired with funds from a tax-exempt obligation originally 
issued on or after October 1, 1993. Thus, the prior regulations did not 
reflect guidance issued by the Department since 1993 to interpret the 
HEA and the regulations (DCL L-93-161 (November 1993), L-93-163 
(December 1993), and L-96-186 (March 1996), FP-05-01 and FP-06-01) or 
the changes made to those requirements by the TTPA or HERA.
    The regulations must reflect the rules for the special allowance 
eligibility of both loans for which SAP at the 9.5 percent minimum rate 
is now claimed and loans on which this rate may be claimed in the 
future. The TTPA placed significant restrictions on the eligibility of 
new loans for the 9.5 percent SAP, and the HERA significantly 
restricted whether additional loans could acquire eligibility. However, 
the eligibility of the great majority of loans on which a 9.5 percent 
SAP is now and will be claimed depends on, or may be affected by, 
transactions such as various refinancing transactions that occurred 
prior to the effective date of either the TTPA or HERA. The prior 
regulations did not state the consequences of some of those 
transactions, even though those consequences had been well settled, 
under the Department's interpretations of the law in effect when the 
transactions occurred. To clarify the requirements for 9.5 percent SAP 
eligibility, the interim final regulations first incorporate these 
interpretations, and then address changes made by the TTPA to the 
continued eligibility of these loans for 9.5 percent SAP, and by the 
HERA as to whether loans may acquire that eligibility.
    The interim final regulations include in Sec.  682.302(f) an 
explanation of certain terms (refinance and originally issued) that 
reflects Departmental interpretations and usage of those terms 
historically. Based on that usage, it is reasonable to conclude that 
the terms are already generally understood as explained in the 
regulations.
    The interim final regulations, as published on August 9, 2006, do 
no more than provide loan holders (and other interested parties) an 
orderly statement of the requirements for acquiring and continued 
eligibility for 9.5 percent SAP for all cohorts of loans, both as in 
effect before the 2004 and 2006 amendments to the HEA, and under the 
2004 and 2006 amendments to the HEA. The interim final regulations did 
not create or change the terms, conditions, and requirements for the 
eligibility for the 9.5 percent SAP from those which already existed 
under applicable law. To the extent that loan holders were in 
compliance with the requirements of: (1) The then-current regulations; 
(2) applicable prior Department interpretations of those regulations 
and the HEA; and (3) changes made by the TTPA and by the HERA, the 
billing status of loans wa