Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program, 32410-32447 [E7-10826]

Agencies

• DEPARTMENT OF EDUCATION

[Federal Register Volume 72, Number 112 (Tuesday, June 12, 2007)]
[Proposed Rules]
[Pages 32410-32447]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-10826]



[[Page 32409]]

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Part II





Department of Education





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34 CFR Parts 674, 682, and 685



 Federal Perkins Loan Program, Federal Family Education Loan Program, 
and William D. Ford Federal Direct Loan Program; Proposed Rule

Federal Register / Vol. 72 , No. 112 / Tuesday, June 12, 2007 / 
Proposed Rules

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DEPARTMENT OF EDUCATION

34 CFR Parts 674, 682, and 685

[Docket ID ED-2007-OPE-0133]
RIN 1840-AC89


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.

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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. The Secretary is amending these regulations to strengthen 
and improve the administration of the loan programs authorized under 
Title IV of the Higher Education Act of 1965, as amended.

DATES: We must receive your comments on or before August 13, 2007.

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 https://
www.regulations.gov, select ``Department of Education'' from the agency 
drop-down menu, then click ``Submit.'' In the Docket ID column, select 
ED-2007-OPE-0133 to add or view public comments and to view supporting 
and related materials available electronically. Information on using 
Regulations.gov, including instructions for submitting comments, 
accessing documents, and viewing the docket after the close of the 
comment period, is available through the site's ``User Tips'' link.
     Postal Mail, Commercial Delivery, or Hand Delivery. If you 
mail or deliver your comments about these proposed regulations, address 
them to Ms. Gail McLarnon, U.S. Department of Education, 1990 K Street, 
NW., room 8026, Washington, DC 20006-8542.

    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 
https://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: Ms. Gail McLarnon, U.S. Department of 
Education, 1990 K Street, NW., Washington, DC 20006-8542. Telephone: 
(202) 219-7048 or via the Internet: 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: 

Invitation To Comment

    We invite you to submit comments regarding these proposed 
regulations. 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 and its overall requirement of 
reducing regulatory burden that might result from these proposed 
regulations. 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 8026, 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 Higher Education Act of 1965, as amended (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 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. The proposed 
regulations that the Department publishes must conform to agreements 
resulting from that process unless the Secretary reopens the process or 
provides a written explanation to the participants in that process 
stating why the Secretary has decided to depart from the agreements. 
Further information on the negotiated rulemaking process can be found 
at: https://www.ed.gov/policy/highered/reg/hearulemaking/2007/nr.html.
    On August 18, 2006, the Department published a notice in the 
Federal Register (71 FR 47756) announcing our intent to establish up to 
four negotiated rulemaking committees to prepare proposed regulations. 
One committee would focus on issues related to the Academic 
Competitiveness Grant and National Science and Mathematics Access to 
Retain Talent (SMART) Grant programs. A second committee would address 
issues related to the Federal student loan programs. A third committee 
would address programmatic, institutional eligibility, and general 
provisions issues. Lastly, a fourth committee would address 
accreditation. The notice requested nominations of individuals for 
membership on the committees who could represent the interests of key 
stakeholder constituencies on each committee. The four committees met 
to develop proposed regulations over the course of several months, 
beginning in December 2006. This NPRM proposes regulations relating to 
the student loan programs that were discussed by the second committee 
mentioned in this paragraph (the ``Loans Committee'').
    The Department developed a list of proposed regulatory changes from 
advice and recommendations submitted by individuals and organizations 
in testimony submitted to the Department in a series of four public 
hearings held on:

[[Page 32411]]

     September 19, 2006, at the University of California-
Berkeley in Berkeley, California.
     October 5, 2006, at the Loyola University in Chicago, 
Illinois.
     November 2, 2006, at the Royal Pacific Hotel Conference 
Center in Orlando, Florida.
     November 8, 2006, at the U.S. Department of Education in 
Washington, DC.
    In addition, the Department received written comments on possible 
regulatory changes submitted directly to the Department by interested 
parties and organizations. All regional meetings and a summary of all 
comments received orally and in writing are posted as background 
material in the docket and can also be accessed at https://www.ed.gov/
policy/highered/reg/hearulemaking/2007/hearings.html. Staff within the 
Department also identified issues for discussion and negotiation. 
Lastly, because The Third Higher Education Extension Act of 2006, (Pub. 
L. 109-292), made changes to the law governing eligible lender trustee 
relationships as of September 30, 2006, the Department added this issue 
to the Loans Committee agenda.
    At its first meeting in December, 2006, the Loans Committee reached 
agreement on its protocols and proposed agenda. These protocols 
provided that the non-Federal negotiators would not represent the 
interests of stakeholder constituencies, but would instead participate 
in the negotiated rulemaking process based on each Committee member's 
experience and expertise in the Title IV, HEA loan programs.
    The members of the Loans Committee were:
     Jennifer Pae, United States Students Association, and Luke 
Swarthout (alternate), State PIRG (Public Interest Research Groups) 
Higher Education Project;
     Deanne Loonin and Alys Cohen (alternate) of the National 
Consumer Law Center.
     Darrel Hammon, Laramie Community College, and Kenneth 
Whitehurst (alternate), North Carolina Community Colleges.
     Pamela W. Fowler, University of Michigan, Patricia McClurg 
(alternate), University of Wyoming, and Sara Bauder (alternate), 
University of Maryland.
     Elizabeth Hicks, Massachusetts Institute of Technology, 
and Ellen Frishberg (alternate), Johns Hopkins University.
     Jeff Arthur, ECPI College of Technology, Robert Collins 
(alternate), Apollo Group, and Nancy Broff (alternate), Career College 
Association.
     Shari Crittendon, United Negro College Fund, and William 
``Buddy'' Blakey (alternate), William A. Blakey & Associates, PLLC.
     Scott Giles, Vermont Student Assistance Corporation, and 
Rachael Lohman (alternate), Pennsylvania Higher Education Assistance 
Agency.
     Tom Levandowski, Wachovia Corporation, and Lee Woods 
(alternate), Chase Education Finance.
     Phil Van Horn, Wyoming Student Loan Corporation, and 
Robert L. Zier (alternate), Indiana Secondary Market for Education 
Loans.
     Robert Sommer, Sallie Mae, and Wanda Hall (alternate), 
EdFinancial Services.
     Richard George, Great Lakes Higher Education Guaranty 
Corporation, and Gene Hutchins (alternate), New Jersey Higher Education 
Student Assistance Authority.
     Eileen O'Leary, Stonehill College, and Christine McGuire 
(alternate), Boston University.
     Alisa Abadinsky, University of Illinois at Chicago, and 
Karen Fooks (alternate), University of Florida.
     Dan Madzelan, U.S. Department of Education.

Ellen Frishberg of Johns Hopkins University resigned from the Committee 
after the third negotiated rulemaking session.
    During its meetings, the Loans Committee reviewed and discussed 
drafts of proposed regulations. It did not reach consensus on the 
proposed regulations in this NPRM. More information on the work of this 
committee can be found at: https://www.ed.gov/policy/highered/reg/
hearulemaking/2007/loans.html.
    These regulations were further refined by the Task Force on Student 
Loans. The Secretary created this task force on April 24, 2007, to 
review issues within the student loan industry. The task force was 
comprised of representatives from several offices within the 
Department, including the Office of Postsecondary Education, Office of 
Federal Student Aid, Office of the General Counsel, Office of Budget 
Service, Office of Planning, Evaluation, and Policy Development, and 
Office of Inspector General. The task force submitted its 
recommendations regarding these regulations to the Secretary on May 9, 
2007.

Significant Proposed Regulations

    The following discussion of the proposed regulations begins with 
changes that affect more than one of the title IV student loan 
programs--the Perkins Loan Program, the FFEL Program, or the Direct 
Loan Program.
    This discussion is followed by separate discussions of proposed 
changes that affect only one of the three programs. Generally, we do 
not address proposed regulatory provisions that are technical or 
otherwise minor in effect.

Simplification of Deferment Process (Sec. Sec.  674.38, 682.210, 
682.210, 682.210, and 685.204)

    Statute: Sections 428(b)(1)(M), 455(f)(2), and 464(c)(2)(A) of the 
HEA authorize deferments for borrowers in the FFEL, Direct Loan, and 
Perkins Loan programs under certain circumstances. A FFEL, Direct Loan, 
or Perkins Loan borrower may receive a deferment during a period when 
the borrower is: Enrolled at least half-time in an institution of 
higher education; enrolled in an approved graduate fellowship program; 
enrolled in an approved rehabilitation training program; seeking and 
unable to find full-time employment; performing qualifying active duty 
military service; or experiencing an economic hardship.
    Current Regulations: Currently, a borrower who has loans held by 
one or more lenders must apply separately to each lender for a 
deferment in accordance with Sec. Sec.  674.38, 682.210, and 685.204 of 
the Department's regulations. Each lender is required to review the 
borrower's deferment request, and make its own determination of the 
borrower's eligibility for the deferment. There is an exception to this 
requirement for in-school deferments. Under Sec. Sec.  674.38(a)(2) and 
682.210(c)(1), a Perkins institution or a FFEL lender may grant an in-
school deferment based on information from the borrower's school, or 
student status information from another source. The Secretary also has 
this option in the Direct Loan Program under Sec.  
685.204(b)(1)(iii)(A)(3). When an in-school deferment is granted using 
this procedure, the institution, lender or Secretary must notify the 
borrower that the deferment has been granted, and provide the borrower 
an opportunity to decline the deferment.
    Proposed Regulations: The proposed regulations in Sec.  
682.210(s)(1)(iii) would allow FFEL lenders to grant graduate 
fellowship deferments, rehabilitation training program deferments, 
unemployment deferments, military service deferments, and economic 
hardship deferments based on information that another FFEL lender or 
the Department has granted the borrower a deferment for the same reason 
and the same time period. The proposed regulations in Sec.  
685.204(g)(2) would also permit the Department to grant a deferment on 
a Direct Loan based on deferment information from a

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FFEL Program lender. The proposed regulations in Sec.  674.38(a)(2) 
would permit schools in the Perkins Loan Program to grant deferments 
based on information from another Perkins Loan holder, FFEL lender, or 
the Department.
    Under the proposed regulations in Sec. Sec.  674.38(a)(3), 
682.210(s)(1)(iv) and 685.204(g)(3), Title IV, HEA loan holders will be 
able to rely in good faith on the deferment eligibility determinations 
of other lenders, including the Department. However, if a loan holder 
has evidence indicating that the borrower does not qualify for a 
deferment, the loan holder may not grant a deferment based on another 
holder's determination of deferment eligibility.
    In addition, the proposed regulations in Sec. Sec.  674.38(a)(6), 
682.210(i)(1) and (t)(7), and 685.204(g)(5) would allow a borrower's 
representative to apply for a military service deferment on behalf of 
the borrower. This change would apply to both the Armed Forces 
deferment available for loans made before July 1, 1993 and the current 
military service deferment.
    Reasons: The non-Federal negotiators recommended adding provisions 
to Sec.  682.210 of the regulations to allow FFEL lenders to grant 
deferments based on deferments granted by other lenders. They noted 
that this is allowable for in-school deferments and asked to extend 
this authority to other deferments. Under this proposal, the FFEL 
lender would determine borrower eligibility for the deferment by 
contacting the other lender or by checking the Department's National 
Student Loan Data System (NSLDS). The Department agreed to consider 
this addition to the regulations. In addition, the Department agreed 
with the negotiators to allow Perkins Loan schools to grant deferments 
based on a borrower's FFEL or Direct Loan deferment eligibility as 
reflected in the proposed changes to Sec.  674.38(a). However, since 
eligibility and documentation requirements for some Perkins Loan 
deferments are different from corresponding deferment requirements in 
the FFEL and Direct Loan programs, these proposed regulations would not 
allow FFEL lenders, or the Department for Direct Loans, to grant 
deferments based on a borrower receiving a deferment on his or her 
Perkins Loan.
    The proposed regulations limit this simplified deferment process to 
deferments that are available to a borrower who received a Title IV, 
HEA loan on or after July 1, 1993. The negotiators suggested that the 
new regulations should also apply to deferments that were available to 
a borrower who first received a Title IV, HEA loan prior to July 1, 
1993.
    However, the Department decided that the pre-July 1, 1993 
deferments are more complex and have more detailed qualifications than 
the current deferments. In addition, the older deferments are not the 
same for all types of loans. A borrower could qualify for a deferment 
on some of their loans but not others. The post-July 1, 1993 deferments 
are relatively uniform across the Title IV, HEA loan programs and 
across loan types. In light of these differences, the Department 
decided that the new policy should apply only to the deferments 
available on current loans.
    Some negotiators asked that the regulations include protection for 
lenders that grant a deferment in error based on another lender's 
determination of deferment eligibility. In response, the Department is 
proposing to add language to Sec. Sec.  674.38(a)(3), 682.210(s)(1)(iv) 
and 685.204(g)(3) stating that loan holders may rely in good faith on 
the deferment determination of another holder, but may not knowingly 
grant an ineligible borrower a deferment if the loan holder has 
information indicating that the borrower is not eligible.
    Some negotiators proposed that loan holders be allowed to grant a 
deferment unilaterally, without any contact from the borrower. The 
Department did not accept this proposal because, although a borrower 
may qualify for a deferment on all of his or her loans, the borrower 
may not necessarily want a deferment on all of his or her loans. Under 
the simplified process, the borrower would not have to submit a 
deferment application to each lender, but would still have to request 
the deferment, in writing, electronically or verbally.
    Some negotiators requested a change to the regulations that would 
allow a request for a military service deferment to be submitted by a 
representative of the borrower as well as the borrower. They noted that 
borrowers who qualify for these deferments may not be in a position to 
easily apply for them. The Department agreed that a special provision 
for these borrowers is warranted. The Department is proposing to amend 
the regulations in Sec. Sec.  674.38(a)(6), 682.210(i)(5) and (t)(7), 
and 685.204(g)(5) to allow a borrower's representative to apply for a 
military service deferment or an Armed Forces deferment on the 
borrower's behalf.
    The Department notes that granting a deferment under this 
simplified process is optional for lenders. A lender is not required to 
use this process when reviewing deferment requests.

Accurate and Complete Copy of a Death Certificate (Sec. Sec.  674.61, 
682.402, and 685.212)

    Statute: Sections 437(a) and (d) of the HEA provide for the 
discharge of a FFEL loan if the borrower, or a dependent on whose 
behalf a parent has borrowed, dies. This provision also applies to 
Direct Loans under section 455(a)(1) of the HEA. Section 464(c)(1)(F) 
provides for the discharge of a Perkins Loan if the borrower dies.
    Current Regulations: Current regulations in Sec. Sec.  674.61(a), 
682.402(b), and 685.212(a) state that if a Perkins, FFEL, or Direct 
Loan borrower dies, or if the student for whom a FFEL or Direct PLUS 
Loan was borrowed dies, the borrower's loan will be discharged based on 
an original or certified copy of the death certificate. Under 
exceptional circumstances, and on a case-by-case basis, a discharge due 
to the death of the borrower may be granted without an original or 
certified copy of the death certificate.
    Proposed Regulations: The Secretary proposes to amend Sec. Sec.  
674.61(a), 682.402(b), and 685.212(a) to allow the use of an accurate 
and complete photocopy of the original or certified copy of the 
borrower's death certificate, in addition to the original or certified 
copy of the death certificate, to support the discharge of a Title IV 
loan due to death.
    Reasons: The Secretary believes that allowing the use of an 
accurate and complete photocopy of the death certificate will decrease 
the burden for survivors of the deceased and for loan holders 
processing death discharges. We have also learned that, in some states, 
there are restrictions and additional costs related to getting an 
additional original or certified copy of the original death certificate 
to provide to loan holders. Under the proposed regulations, the lender 
may accept an accurate and complete photocopy of the death certificate. 
The Secretary chose not to allow the use of a fax or electronic version 
of the certificate because documents in those formats are more 
vulnerable to alteration.
    Under the proposed regulations a lender may rely on an ``accurate 
and complete photocopy'' of the original or certified copy of the death 
certificate to grant a discharge due to the death of the borrower. The 
intent of the proposed change is not to require an individual to 
provide an original or certified copy of the death certificate to the 
lender for the lender to photocopy, but rather to allow a lender to 
accept a photocopy of the original or certified copy of the death 
certificate as an accurate and complete

[[Page 32413]]

copy of the original or certified copy, unless there is evidence that 
the copy is not an accurate and complete copy of the original or 
certified copy.
    Although other data sources such as NSLDS, the Social Security 
Administration's Death Master File, and documents such as a police 
report or court documents could possibly be used as a basis for 
discharging a loan due to death, the Department declined to expand the 
documentation requirements in order to guard against fraud and abuse in 
the discharge process.
    While the Department believes that it is difficult to alter an 
original or certified copy of an original death certificate because 
these documents are generally notarized or contain raised, government 
stamps validating the document's authenticity, we nonetheless solicit 
public comment on whether the use of a photocopy of an original or 
certified copy of an original death certificate could lead to fraud and 
abuse in the death discharge process. Specifically, we are interested 
in comments that identify how such fraud is likely to occur and ways to 
address this issue.

Total and Permanent Disability Discharge (Sec. Sec.  674.61, 682.402, 
and 685.213)

    Statute: Sections 437(a), 464(c)(1)(F), and 455(a)(1) of the HEA 
provide for a discharge of a borrower's FFEL, Perkins, or Direct Loan 
Program loan, respectively, if the borrower becomes totally and 
permanently disabled. A total and permanent disability is determined in 
accordance with regulations of the Secretary.
    Current Regulations: Sections 674.61(b), 682.402(c), and 685.213 of 
the Perkins, FFEL, and Direct Loan Program regulations, respectively, 
authorize the discharge of a loan if the borrower becomes totally and 
permanently disabled. Section 674.51 of the Perkins Loan Program 
regulations defines total and permanent disability, and Sec.  682.200 
defines totally and permanently disabled, for the purposes of the FFEL 
and Direct Loan Programs, as the condition of an individual who is 
unable to work and earn money because of an injury or illness that is 
expected to continue indefinitely or result in death.
    Under current regulations in Sec. Sec.  674.61(b), 682.402(c), and 
685.213, a Perkins, FFEL or Direct Loan borrower submits a discharge 
application to the loan holder. The application must include a 
physician's certification that the borrower is totally and permanently 
disabled as defined in Sec.  682.200 or has a total and permanent 
disability as defined in Sec. Sec.  674.51. To establish eligibility 
for the discharge, a borrower cannot have worked or earned money or 
received a Title IV loan at any time after the date of the borrower's 
total and permanent disability. The loan holder reviews the 
application, and upon making an initial determination that the borrower 
meets the definition and requirements for a total and permanent 
disability discharge, notifies the borrower that the loan has been 
assigned to the Department and that no payments are due to the lender. 
Under Sec.  685.213 of the current regulations, the Department is 
responsible for reviewing disability discharge applications submitted 
by Direct Loan borrowers.
    Upon assignment of the Perkins or FFEL Loan or receipt of a Direct 
Loan discharge application, the Department reviews the application. If 
the borrower meets the eligibility requirements for a discharge, the 
Department notifies the borrower that the loan has been placed in a 
three-year conditional discharge status and that no payments are due 
during that period. During the three-year conditional discharge period, 
the borrower's income from employment cannot exceed the poverty line 
for a family of two for any 12-month period, and the borrower cannot 
take out any additional Title IV loans. Under current regulations, in 
some cases, the three-year conditional period will already have elapsed 
if the borrower's total and permanent disability date is more than 
three years prior to the date the borrower applies for a discharge. In 
such cases, a final discharge decision is made immediately upon 
assignment of the account to the Department without any current income 
verification, as long as the borrower is otherwise eligible. Otherwise, 
if, at the end of the three-year conditional discharge period, the 
borrower still meets the discharge requirements, the Department makes a 
final determination of eligibility and discharges the loan. Under 
current regulations, any payments received by the loan holder or the 
institution after the date the loan is assigned to the Secretary or 
during the three-year conditional discharge period are forwarded to the 
Department for crediting to the borrower's account. When the Department 
makes a final determination to discharge the loan, the payments 
received on the loan after the date the loan was assigned to the 
Department are returned. If the borrower does not meet the eligibility 
requirements during the three-year conditional discharge period, 
collection activity resumes on the loan.
    Proposed Regulations: These proposed regulations would restructure 
the disability discharge regulations for the Perkins Loan, FFEL, and 
Direct Loan programs, Sec. Sec.  674.61(b), 682.402(c) and 685.213, 
respectively, to clarify the eligibility requirements for a final total 
and permanent disability discharge and better describe the discharge 
process. The Department is not changing the definition of total and 
permanent disability in Sec.  674.51 or the definition or totally and 
permanently disabled in Sec.  682.200.
    The proposed regulations would: (1) Add a new requirement in 
Sec. Sec.  674.61(b)(2)(i), 682.402(c)(2)(i) and 685.213(b)(1) that the 
borrower submit a discharge application to the loan holder within 90 
days of the date the physician certifies the borrower's application; 
(2) define the date of the borrower's total and permanent disability as 
the date the physician certifies the borrower's disability on the 
discharge application form in Sec. Sec.  674.61(b)(3)(ii), 
682.402(c)(3)(ii), and 685.213(c)(2); (3) require a prospective three 
year conditional discharge period to establish eligibility for a total 
and permanent disability discharge beginning on the date the Secretary 
makes an initial determination that the borrower is totally and 
permanently disabled, in Sec. Sec.  674.61(b)(3)(iii), 
682.402(c)(3)(iii) and 685.213(c)(3); and (4) provide that upon making 
a final determination of the borrower's total and permanent disability, 
the Secretary returns those payments made on the loan after the date 
the physician completed and certified the borrower's discharge on the 
loan discharge application in Sec. Sec.  674.61(b)(5), 
682.402(c)(4)(iii), 685.213(d)(3)(ii).
    Reasons: The Department is proposing to restructure the Perkins 
Loan, FFEL, and Direct Loan total permanent disability discharge 
regulations in Sec. Sec.  674.61(b), 682.402(c) and 685.213, 
respectively, to clarify the eligibility requirements and to better 
explain the application and eligibility process. Several negotiators 
argued that the process and eligibility requirements as currently 
written are difficult for borrowers to understand. For example, non-
Federal negotiators noted that the current regulations establish a 
different standard for eligibility for the period between the date of 
the physician's certification and the Secretary's initial determination 
of eligibility in comparison to the three-year conditional discharge 
period. The Department proposes to address these concerns by clearly 
listing the continuing eligibility requirements in Sec.  
674.61(b)(2)(iii) of the Perkins Loan Program regulations, Sec.  
682.402(c)(3) of the FFEL program regulations, and

[[Page 32414]]

Sec.  685.213(b)(2) of the Direct Loan program regulations and by 
requiring loan holders to disclose these eligibility requirements to 
borrowers. Some non-Federal negotiators also noted that even though 
collection activity is suspended after the borrower submits a discharge 
application, some borrowers continued to make payments on their loan 
because they were not aware of the suspension of collection activity. 
The Department is proposing to amend the regulations to require loan 
holders to inform borrowers that no further payments on the loan are 
due once the discharge application is sent to the Secretary for her 
initial eligibility determination.
    The proposed regulations in Sec. Sec.  674.61(b)(2)(i), 
684.402(c)(2)(i) and 685.213(b)(1) would require borrowers to submit 
the completed application for a total and permanent disability 
discharge to the loan holder within 90 days of the date the physician 
certifies the application. This requirement would help ensure that the 
Secretary has accurate and timely information on which to base her 
determination. Limiting the time period will also help borrowers avoid 
the possibility that they might inadvertently take an action that would 
disqualify them for a final discharge. The Department initially 
proposed a 30-day application submission requirement, but the 
Department was persuaded by the non-Federal negotiators that 90 days 
would provide a more appropriate standard for borrowers.
    Under the proposed regulations in Sec. Sec.  674.61(b)(3)(ii), 
682.402(c)(3)(ii), and 685.213(c)(2) if the Secretary makes an initial 
determination that the borrower qualifies for a discharge, the date of 
disability is the date the physician certifies the borrower's 
disability on the form. The proposed regulations also provide for a 
three-year prospective conditional discharge period to establish 
eligibility for a total and permanent disability discharge. The 
conditional discharge period begins on the date that the Secretary 
makes her initial determination that the borrower is totally and 
permanently disabled. Thus, the receipt of any Title IV, HEA loans, 
including consolidation loans, or income by the borrower before the 
date the physician certified the application form would not disqualify 
the borrower from receiving a final discharge. However, the borrower 
would have to meet the disability requirements for a three-year 
prospective period.
    The Department is proposing these changes because currently, in 
some cases, the three-year conditional discharge period has already 
elapsed before the borrower applies for a discharge and a final 
discharge is made immediately upon assignment of the account to the 
Department. This result is inconsistent with the original intent of the 
Department's regulations, which was to conform the discharge 
requirements to other Federal programs that only provide Federal 
benefits based on a disability after monitoring the applicant's 
condition. Further, there have been instances when borrowers have 
received otherwise disqualifying Title IV loans and earnings in excess 
of allowable levels after the date of application but also after the 
date of the borrower's retroactive final discharge. Under current 
regulations, the Secretary grants a final discharge in these 
circumstances. Some non-Federal negotiators did not agree with the 
Department's proposal that the borrower's disability date should be the 
date the physician certifies that the borrower is disabled on the 
discharge application form.
    Lastly, the Department is proposing changes to Sec. Sec.  
674.61(b)(5), 682.402(c)(4)(iii), and 685.213(d)(3)(ii) to provide that 
the Secretary, upon making a final determination of the borrower's 
total and permanent disability, will return payments made on the loan 
after the date the physician completed and certified the borrower's 
total and permanent disability on the loan discharge application. The 
non-Federal negotiators did not agree with the Department's position 
and stated that if a borrower successfully completed a three-year 
prospective discharge period, the borrower should receive a refund of 
prior payments made on the loan. The Department is proposing this 
change because it believes that not counting any loans or income 
received prior to the date the physician certifies the borrower's 
disability on the application and returning payments made by the 
borrower or on the borrower's behalf back to the date of disability 
provided by a physician would create two onset dates and create program 
integrity issues in the administration of the total and permanent 
disability discharge process. In addition, in administering the 
discharge process, the Department has found that, in many cases, 
certifying physicians have to rely solely on the individual's 
statements in determining a date of disability onset. In these 
situations, there may not be a strong medical basis for using that date 
as a date for establishing eligibility for Federal benefits. In light 
of this history, the Department believes that the best date to use as 
the eligibility date is the date the physician certified the 
application, since that process requires the physician to review the 
borrower's condition at that time rather than speculate as to the 
borrower's condition in the past.

NSLDS Reporting Requirements (Sec. Sec.  674.16, 682.208, 682.401, and 
682.414)

    Statute: Section 485B(e) of the HEA provides for the Secretary to 
prescribe by regulation standards and procedures that require all 
lenders and guaranty agencies to report information to the NSLDS on all 
aspects of Title IV loans in uniform formats in order to permit the 
direct comparison of data submitted by individual lenders, servicers, 
and guaranty agencies.
    Current Regulations: The current Perkins Loan Program and FFEL 
Program regulations do not reflect NSLDS reporting requirements. Under 
Sec.  682.401(b)(20), guaranty agencies are required to monitor student 
enrollment status of a FFEL Program borrower, or a student on whose 
behalf a parent has borrowed, and report to the current holder of the 
loan within 60 days any changes in the student's enrollment status that 
triggers the beginning of the borrower's grace period or the beginning 
or resumption of the borrower's immediate obligation to make scheduled 
payments.
    Current Sec.  682.414(b)(4) requires guaranty agencies to report 
information consisting of extracts from computer databases and supplied 
in the medium and the format prescribed in the Stafford and SLS, and 
PLUS Loan Tape Dump Procedures. The tape dumps, which are now obsolete, 
contained loan status information on guaranty agency loans.
    Proposed Regulations: The Secretary proposes in Sec.  674.16(j) of 
the Perkins Loan regulations, and Sec.  682.208(i) and Sec.  
682.414(b)(4) of the FFEL regulations to require institutions, lenders, 
and guaranty agencies to report enrollment and loan status information, 
or any other Title IV-loan-related data required by the Secretary, to 
the Secretary by a deadline established by the Secretary.
    The proposed changes to Sec.  682.401(b)(20) require a guaranty 
agency to report enrollment and loan status information on a FFEL 
Program borrower or student to the current holder of any loan within 30 
days of any changes to the student's enrollment status.
    Reasons: The proposed changes to Sec. Sec.  674.16(j), 682.208(i) 
and 682.414(b)(4) would provide for the establishment by the Secretary 
of NSLDS reporting timeframes to improve the timeliness and 
availability of

[[Page 32415]]

information important to administering the student loan programs. The 
Secretary also believes that the Department will be able to implement 
other proposed regulatory changes, such as simplification of the 
deferment granting process, more easily and more efficiently if timely 
and accurate information is more readily available in NSLDS.
    Some non-Federal negotiators requested that the proposed 
regulations require the Secretary to consult with program participants 
before determining the ``deadline dates established by the Secretary''. 
The Department declined to make this change to the proposed 
regulations, but noted that there are other opportunities for program 
participants to be involved in discussions about NSLDS reporting 
requirements and that it was unnecessary to require it in regulations. 
The Department is required to consult with the community under section 
432(e) of the HEA and will continue to discuss the issues and concerns 
of Title IV, HEA program participants related to NSLDS reporting 
through established workgroups and conference calls.
    Several negotiators noted that the Department's proposed reduction 
of the timeframe for a guaranty agency to report enrollment status to a 
lender from 60 days to 30 days might be disruptive and require systems 
changes for the various participants in the Title IV loan programs. A 
negotiator requested a longer time frame of at least 45 days. The 
Department acknowledges that the change to 30 days will have some 
impact on the guaranty agencies' and lenders' systems. However, the 
Department is concerned that a timeframe of 45 days or longer will mean 
that the information in the NSLDS is quickly out-of-date. The 
Department invites further comment and discussion on this timeframe and 
on any associated costs through this NPRM. Also, under the master 
calendar requirements contained in the HEA, if the Department finalizes 
these proposed regulations on or before November 1, 2007, this 
provision will be effective on July 1, 2008, which will provide 
sufficient time for system reprogramming.

Certification of Electronic Signatures on Master Promissory Notes 
(MPNs) Assigned to the Department (Sec. Sec.  674.19, 674.50, 682.409, 
and 682.414)

    Statute: Section 467(a) of the HEA authorizes the Secretary to 
collect assigned Perkins Loans under such terms and conditions as the 
Secretary may prescribe. Section 432(a) of the HEA authorizes the 
Secretary to prescribe regulations as necessary to carry out the 
purposes of the FFEL Program, including regulations to establish 
minimum standards with respect to sound management and accountability 
in the FFEL Program.
    Current Regulations: Currently the regulations for the Perkins Loan 
program and the FFEL Program do not include any requirements for 
institutions and lenders to create and maintain a record of their 
electronic signature process for promissory notes and MPNs.
    Proposed Regulations: The proposed changes in Sec.  674.19(e)(2) 
and (3) would require an institution to create and maintain a 
certification regarding the creation and maintenance of any 
electronically signed Perkins Loan promissory note or MPN in accordance 
with documentation requirements in proposed Sec.  674.50. Proposed 
changes to Sec.  674.19(e)(4)(ii) and Sec.  682.414(a)(5)(iv) would 
require an institution or the holder of a FFEL loan, respectively, to 
retain an original of an electronically signed Perkins Loan or FFEL 
Program MPN for 3 years after all loans on the MPN are satisfied. Under 
the proposed changes in Sec.  674.50(c)(12) and Sec.  682.414(a)(6), an 
institution, for assigned Perkins loans, or a guaranty agency and 
lender, for assigned FFEL loans, would be required to cooperate with 
the Secretary, upon request, in all matters necessary to enforce an 
assigned loan that was electronically signed. This cooperation would 
include providing testimony to ensure the admission of electronic 
records in legal proceedings and providing the Secretary with the 
certification regarding the creation and maintenance of electronically 
signed promissory notes. The proposed changes in Sec. Sec.  
674.50(c)(12)(iii) and 682.414(a)(6)(iii) also would require the 
institution, or the guaranty agency and lender, respectively, to 
respond within 10 business days, to any request by the Secretary for 
any record, affidavit, certification or other evidence needed to 
resolve any factual dispute in connection with an electronically signed 
promissory note that has been assigned to the Department. Lastly, 
proposed changes in Sec. Sec.  674.50(c)(12)(iv) and 682.414(a)(6)(iv) 
would require that an institution, or guaranty agency and lender, 
respectively, ensure that all parties entitled to access have full and 
complete access to the electronic records associated with an assigned 
Perkins or FFEL MPN, until all loans made on the MPN are satisfied.
    Proposed changes to Sec.  682.409(c)(4)(viii) of the FFEL Program 
regulations would require the guaranty agency to provide the Secretary 
with the name and location of the entity in possession of an original, 
electronically signed MPN that has been assigned to the Department.
    Reasons: MPNs are used in all of the Title IV, HEA Loan programs. 
MPNs, which can be used for up to a 10-year period, have no loan amount 
or loan period on the face of the note and can be signed 
electronically. The Department is amending Sec. Sec.  674.19 and 674.50 
of the Perkins Loan Program regulations and Sec. Sec.  682.409 and 
682.414 of the FFEL Program regulations to support the Department's 
efforts to enforce electronically-signed promissory notes that are 
assigned to the Department. These requirements will help ensure that 
the Department has the evidence to enforce the loan in cases in which a 
factual dispute or a legal challenge is raised in connection with the 
validity of the borrower's electronic signature and the MPN. In order 
to preserve the integrity of the Perkins and FFEL programs as well as 
the Federal fiscal interest, the Department believes it is essential 
that an institution or lender be able to guarantee the authenticity of 
a borrower's signature on loans assigned and collected by the 
Department.
    During the regulatory negotiations, the Department originally 
proposed to require in Sec.  682.406(a) that a lender submit a 
certification regarding the creation and maintenance of the electronic 
MPN or promissory note, including the lender's authentication and 
signature process, to the guaranty agency as part of the default claim 
process. The certification would have then been submitted to the 
Department when the guaranty agency assigned a FFEL loan under the 
mandatory assignment provisions in Sec.  682.409(c). The Department 
also originally proposed to amend Sec.  682.414(a)(ii) to require a 
guaranty agency to maintain a certification regarding the creation and 
maintenance of the lender's electronic MPN for each loan held by the 
agency.
    With respect to the Perkins Loan Program, the Department originally 
proposed similar new requirements that an institution maintain a 
certification regarding the creation and maintenance of the MPN in 
Sec.  674.19(d) and provide the certification to the Department, upon 
request, when assigning the loan in accordance with Sec.  674.50(c).
    Many non-Federal negotiators believed that the Department's 
original proposal was too burdensome.
    Some non-Federal negotiators submitted a counter-proposal to the 
Department that proposed placing the burden of creating and maintaining 
a certification of a lender's electronic signature process on the 
lender that

[[Page 32416]]

created the original electronic MPN. This counter-proposal was intended 
to be consistent with the lenders' current practices. The non-Federal 
negotiators from lending organizations reaffirmed that lenders will be 
in possession of and would deliver whatever the Department needs to 
enforce an electronically signed promissory note or MPN, including 
expert testimony in court cases.
    The Department returned to the final session of negotiations with 
revised proposed regulations in Sec.  682.414(a)(6) based on the 
counter-proposal submitted by some of the non-Federal negotiators. The 
non-Federal negotiators expressed their support for this proposal, but 
questioned many of the details. In particular, some non-Federal 
negotiators believed that it was redundant for the certification of a 
loan holder's electronic signature process to include a requirement 
that the lender document its borrower authentication process. However, 
the Department considers this requirement a vital part of the 
certification. Several non-Federal negotiators noted that the Perkins 
Loan Program regulations in Sec. Sec.  674.19(d) and 674.50(c) did not 
contain the same detailed requirements as Sec.  682.414(a)(6) regarding 
the contents of the certification. These proposed regulations include 
the same standards in both programs. Several non-Federal negotiators 
thought that the provisions in Sec.  674.50(c)(12)(iii) and Sec.  
682.414(a)(6)(iii) that require institutions, lenders and guaranty 
agencies to respond to requests for information from the Department 
within 10 business days would be too difficult to meet and asked the 
Department to use another standard. The Department notes, however, that 
10 business days is a significant period of time and that it is vital 
that the Department receive the information as quickly as possible when 
a borrower is contesting the validity of a debt. Lastly, several non-
Federal negotiators expressed concern about the requirement to retain 
an original electronically signed MPN for at least 7 years after all 
the loans made on the MPN have been satisfied. In issuing this NPRM, 
the Department has, after considering these concerns, decided to 
require that schools and lenders retain the original, electronically 
signed MPN for at least 3 years after all the loans made on the MPN 
have been satisfied. This record retention standard is needed to 
accommodate borrower challenges to an administrative wage garnishment 
or federal offset action taken by the Department to collect on assigned 
FFEL loans.
    The Department realizes that these proposed regulations for 
electronically signed documents may have an impact on the operations of 
lenders, guaranty agencies and institutions. The Department 
particularly invites comments on possible changes to these regulations 
to reduce that impact while ensuring the Department's ability to 
enforce loans.

Record Retention Requirements on Master Promissory Notes (MPNs) 
Assigned to the Department (Sec. Sec.  674.19, 674.50, 682.406, and 
682.409)

    Statute: Section 443(a) of the General Education Provisions Act 
(GEPA), 20 U.S. 1232f(a), provides that recipients of Federal funds 
under any applicable program must retain records of the amount and 
distribution of Federal funds to facilitate effective audits of the use 
of those funds. The GEPA generally applies to institutions that 
participate in the Title IV, HEA programs.
    Current Regulations: Current requirements related to the retention 
of loan disbursement records by institutions are in Sec.  
668.24(c)(1)(iv) and (e)(1) and require institutions to retain 
disbursement records, unless otherwise directed by the Secretary, for 
three years after the end of the award year for which the aid was 
awarded and disbursed. Section 674.50(c) does not currently include 
disbursement records as part of the documentation the Secretary may 
require an institution to submit when assigning a Perkins Loan to the 
Department.
    Section 682.414(a)(4)(ii) and (iii) requires a guaranty agency to 
ensure that a lender retains a record of each disbursement of loan 
proceeds to a borrower for not less than three years following the date 
the loan is repaid in full by the borrower, or for not less than five 
years following the date the lender receives payment in full from any 
other source. Section 682.414(a)(4)(iii) also provides that, in 
particular cases, the Secretary or the guaranty agency may require the 
retention of records beyond this minimum period. However, 
S682.409(c)(4) does not currently require a guaranty agency to submit a 
record of the lender's disbursements when assigning a loan to the 
Department.
    Proposed Regulations: The proposed changes in Sec.  674.19(e)(2)(i) 
and (e)(3)(i) would require an institution that participates in the 
Perkins Loan Program to retain records showing the date and amount of 
each disbursement of each loan made under an MPN. The institution also 
would be required to retain disbursement records for each loan made on 
an MPN until the loan is canceled, repaid, or otherwise satisfied. 
Proposed Sec.  674.50(c)(11) would require an institution to submit 
disbursement records on an assigned Perkins loan upon the Secretary's 
request. The proposed changes in Sec.  682.409(c)(4)(vii) would require 
a guaranty agency to submit the record of the lender's disbursement of 
loan funds to the school for delivery to the borrower when assigning a 
FFEL Loan to the Department.
    Reasons: The proposed changes to Sec. Sec.  674.19(e) and 674.50(c) 
of the Perkins Loan Program regulations that require the retention of 
MPN disbursement records by an institution and submission of such 
records, if requested by the Secretary, on Perkins Loans assigned to 
the Department would support enforcement and collection on the MPN. 
These regulatory changes would also facilitate the process of proving 
that a borrower benefited from the proceeds of the loan, if the 
borrower challenges the validity of the loan. The proposed addition of 
Sec.  682.409(c)(4)(vii), requiring a guaranty agency to submit a 
record of the lender's disbursement records upon assigning an FFEL loan 
to the Department, would accomplish the same enforcement goals.
    The Department's original proposal related to the retention of 
disbursement records in support of enforcement of FFEL loans assigned 
to the Department presented during the negotiations was different than 
the changes proposed here. The Department originally proposed to 
require schools to report to the lender the date and amount of each 
disbursement of FFEL loan funds to a borrower's account no later than 
30 days after delivery of the disbursement to the borrower. Under the 
Department's original proposal, lenders also would have been required 
to provide the record of a school's delivery of loan disbursements to a 
FFEL borrower as a condition for a guaranty agency to make a claim 
payment and receive reinsurance coverage. Lastly, the Department 
originally proposed to require that the guaranty agency, upon 
assignment of a FFEL loan to the Department, submit a record of the 
school's delivery of loan disbursements to the borrower.
    The Department's original proposal for the retention of MPN 
disbursement records on assigned Perkins Loans is reflected in these 
proposed regulations.
    Some non-Federal negotiators expressed concern about the burden 
associated with reporting and retaining voluminous amounts of 
disbursement data when only a limited amount of the data would actually 
be needed by the Department to enforce an assigned

[[Page 32417]]

Perkins or FFEL loan. Some non-Federal negotiators expressed concern 
that the new requirements could affect the payment of insurance and 
reinsurance claims in the FFEL program. Some of the non-Federal 
negotiators asserted that lenders, guaranty agencies, and schools could 
supply needed disbursement records to the Department without adding new 
regulations. Several non-Federal negotiators suggested that the 
Department use existing data systems, such as the NSLDS, to collect 
disbursement information, rather than requiring new record retention 
procedures.
    The Department carefully considered the concerns of these non-
Federal negotiators, and returned to the last session of negotiations 
with the proposed changes to the regulations on retention of 
disbursement records that are reflected in this NPRM. The Department 
decided that requiring the collection, retention, and submission of a 
school-based record documenting each disbursement of a FFEL loan might 
be too burdensome in light of the relatively few occasions that require 
the use of such records. The Department decided to continue to use the 
lender documentation of disbursements currently provided to the 
Department in the FFEL assignment process. The Department is proposing 
to codify this practice in Sec.  682.409(c)(4)(vii). However, the 
Department intends to monitor this process carefully and will require a 
guaranty agency or lender to return reinsurance, interest benefits and 
special allowance for any loan determined to be unenforceable due to 
the absence of disbursement records in accordance with Sec.  
682.406(a)(13). If the disbursement documentation is not available or 
reliable, the Department reserves its authority to reexamine this issue 
in the future.
    For institutions that participate in the Perkins Loan program, the 
Department is proposing new provisions requiring the retention of 
school-based disbursement records because the institution is the lender 
in the Perkins Loan Program. Moreover, because MPNs have been in use in 
the Perkins Loan Program for approximately three years, institutions 
have retained all disbursement records on Perkins MPNs under current 
record retention requirements in Sec.  668.24. The only new requirement 
for Perkins institutions will be that these disbursement records must 
be retained for at least three years after a Perkins Loan is satisfied 
and that these disbursement records be submitted to the Department on 
an assigned Perkins MPN, if requested by the Secretary.

Loan Counseling for Graduate or Professional Student PLUS Loan 
Borrowers (Sec. Sec.  682.603, 682.604(f), 682.604(g), 685.301, 
685.304(a), and 685.304(b))

    Statute: Under section 428B(a)(1) of the HEA, a graduate or 
professional student may borrow a PLUS Loan. However, section 
485(b)(1)(A) of the HEA specifically excludes PLUS Loan borrowers from 
the groups of borrowers for which exit counseling must be provided. The 
HEA does not address entrance counseling requirements for Stafford and 
PLUS Loan borrowers.
    Current Regulations: The current regulations in Sec. Sec.  
682.604(f) and (g) and 685.304(a) and (b) require entrance and exit 
counseling for Stafford Loan borrowers, but not for graduate or 
professional student PLUS Loan borrowers.
    Proposed Regulations: Proposed Sec.  682.604(f)(2) would require 
entrance counseling for graduate or professional student PLUS Loan 
borrowers. The proposed entrance counseling requirements for student 
PLUS Loan borrowers would vary, depending on whether the borrower has 
received a Stafford Loan prior to receipt of the PLUS Loan.
    Proposed Sec.  682.604(g) would also modify the exit counseling 
requirements for Stafford Loan borrowers. If the borrower has received 
a combination of Stafford Loans and PLUS Loans, the institution must 
provide average anticipated monthly repayment amount information based 
on the combination of different loan types the borrower has received in 
accordance with proposed Sec.  682.604(g)(2)(i).
    In addition, the proposed regulations in Sec.  682.603(d) would 
require institutions, as part of the process for certifying a FFEL 
Program Loan, to notify graduate or professional students who are 
applying for a PLUS Loan of their eligibility for a Stafford Loan. The 
proposed regulations require institutions to provide a comparison of 
the terms and conditions of a PLUS Loan and Stafford Loan, and ensure 
that prospective PLUS borrowers have an opportunity to request a 
Stafford Loan.
    The proposed regulations in Sec. Sec.  685.301(a)(3), 
685.304(a)(2), and 685.304(b)(4) would include comparable changes to 
the Direct Loan Program regulations with respect to graduate or 
professional student borrowers of Direct PLUS Loans.
    Reasons: The committee agreed that with the newly authorized 
availability of PLUS Loans to graduate and professional students, there 
is a need to revise the loan counseling requirements to account for 
graduate and professional student PLUS borrowers.
    Several negotiators pointed out that exit counseling is often more 
beneficial to student borrowers than entrance counseling, as exit 
counseling occurs at the time the loan is nearing repayment, and 
students are more focused on repaying the loan at that point. However, 
the statute specifically exempts PLUS borrowers from exit counseling 
requirements. Although the Department encourages schools to provide 
exit counseling to graduate and professional student PLUS borrowers, 
the Department cannot require schools to provide such counseling.
    One negotiator suggested that the Department require a school's 
Stafford Loan exit counseling include information related to the PLUS 
Loan if a Stafford Loan borrower also had a PLUS Loan. The Department 
determined that, in those cases, the exit counseling requirements for 
Stafford Loan borrowers could be modified to include information on 
PLUS Loans. Accordingly, that requirement is included in Sec. Sec.  
682.604(g)(2) and 685.304(b)(4) of the proposed regulations.
    The Department and the other negotiators agreed that borrowers who 
are eligible for both Stafford Loans and PLUS Loans should be given 
information on the relative merits of each loan type, and be given an 
opportunity to obtain a Stafford Loan prior to the borrower's receipt 
of a PLUS Loan. Therefore, the Department is proposing to require in 
Sec. Sec.  682.603(d) and 685.301(a) that the school provide a 
comparison of the terms and conditions of a PLUS Loan and a Stafford 
Loan prior to the graduate or professional student's receipt of a PLUS 
Loan, so the borrower has the opportunity to make the best decision in 
terms of which loan to accept.
    Several negotiators felt that the Department's initial proposal was 
too vague, and asked for more specificity regarding which terms and 
conditions should be highlighted for these borrowers. In response, the 
Department has added more specificity to Sec. Sec.  682.603(d)(1) and 
685.301(a)(3) of the proposed regulations.
    With regard to entrance counseling requirements for borrowers who 
have both Stafford and PLUS Loans, one negotiator asked if the proposed 
regulations would preclude a school from providing both Stafford and 
PLUS Loan entrance counseling at the same time. The Department 
responded that the proposed regulations would not preclude this 
practice.

[[Page 32418]]

    One negotiator pointed out that many graduate or professional 
student PLUS borrowers will have already received Stafford Loans as 
undergraduates, and therefore will have already received Stafford Loan 
entrance counseling. Since the entrance counseling information for both 
loan types is similar, this negotiator felt that it would be redundant 
to offer PLUS Loan entrance counseling to a borrower who was already 
received Stafford Loan entrance counseling. Other negotiators, however, 
argued that since the terms and conditions of the loans are different, 
additional counseling should be required. In light of this discussion, 
the Department is proposing to modify the entrance counseling 
requirements in Sec. Sec.  682.604(f)(2) and 685.304(a)(2) to require 
that different sets of information be provided to graduate or 
professional student PLUS borrowers who have already received Stafford 
Loans, and graduate or professional student PLUS borrowers who have not 
received Stafford Loans.

Maximum Loan Period (Sec. Sec.  682.401, 682.603, and 685.301)

    Statute: The HEA does not address the issue of maximum loan periods 
specifically.
    Current Regulations: Current regulations in Sec.  
682.401(b)(2)(ii)(C), Sec.  682.603(f)(2)(i), and Sec.  
685.301(a)(9)(ii)(A) provide that the loan period for a title IV, HEA 
program loan may not exceed 12 months.
    Proposed Regulations: Proposed Sec. Sec.  682.401(b)(2)(ii)(A), 
682.603(g)(2)(i), and 685.301(a)(10)(ii)(A) would eliminate the maximum 
12-month loan period for annual loan limits in the FFEL and Direct Loan 
programs and the 12 month period of loan guarantee in the FFEL Program.
    Reasons: The Secretary believes eliminating the 12 month limit on 
loan periods would give schools, lenders and students greater 
flexibility when rescheduling disbursements. This proposed change would 
allow institutions to certify a single loan for students in shorter 
non-term or nonstandard term programs and to provide greater 
flexibility in rescheduling disbursements for students who drop out and 
return within the permitted 180-day period.
    This issue was added to the rulemaking agenda at the request of 
some non-Federal negotiators. One proponent of the change noted that, 
on average, 17 percent of students have an academic program longer than 
a 12-month period, and by eliminating the maximum length of a loan 
period, the need to certify another loan to cover the remainder of the 
program would be eliminated. The negotiators noted that the proposed 
changes would not increase the amount of borrowing by students. In 
other words, annual loan limits would still be controlled by the 
institution's academic year in those instances where the academic year 
and loan period both exceed 12 months.
    The Secretary agrees with these negotiators that it would benefit 
the students and the FFEL and Direct Loan Programs to remove the 12 
month rule from the regulations.

Mandatory Assignment of Defaulted Perkins Loans. (Sec. Sec.  674.8 and 
674.50)

    Statute: To participate in the Perkins Loan Program, an institution 
of higher education enters into a Program Participation Agreement (PPA) 
with the Secretary under section 463 of the HEA. The HEA enumerates 
several provisions of the PPA. Section 463(a)(9) of the HEA allows for 
the addition of provisions to the PPA, agreed to by the institution and 
the Secretary, that may be necessary to protect the United States from 
unreasonable risk of loss.
    Current Regulations: The regulations governing the required 
contents of the PPA are in Sec.  674.8 of the Perkins Loan Program 
regulations. Under Sec.  674.8(d), the PPA includes a provision that 
the school may voluntarily assign a defaulted Perkins Loan to the 
Department if the school decides not to service or collect the loan or 
the loan is in default despite the school's due diligence in collecting