Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program, 36556-36602 [E9-16952]

Agencies

• DEPARTMENT OF EDUCATION

[Federal Register Volume 74, Number 140 (Thursday, July 23, 2009)]
[Proposed Rules]
[Pages 36556-36602]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-16952]



[[Page 36555]]

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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. 74 , No. 140 / Thursday, July 23, 2009 / 
Proposed Rules

[[Page 36556]]


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DEPARTMENT OF EDUCATION

[Docket ID ED-2009-OPE-0004]

34 CFR Parts 674, 682, and 685

RIN 1840-AC98


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. These proposed regulations are needed to implement 
provisions of the Higher Education Act of 1965 (HEA), as amended by the 
Higher Education Opportunity Act of 2008 (HEOA).

DATES: We must receive your comments on or before August 24, 2009.

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 to submit your comments electronically. Information 
on using Regulations.gov, including instructions for accessing agency 
documents, submitting comments, and viewing the docket, is available on 
the site under ``How To Use This Site.''
     Postal Mail, Commercial Delivery, or Hand Delivery.
    If you mail or deliver your comments about these proposed 
regulations, address them to Pamela Moran, U.S. Department of 
Education, 1990 K Street, NW., room 8033, Washington, DC 20006-8502.

    Privacy Note: The Department's policy for comments received from 
members of the public (including those comments submitted by mail, 
commercial delivery, or hand delivery) is to make these submissions 
available for public viewing in their entirety on the Federal 
eRulemaking Portal at https://www.regulations.gov. Therefore, 
commenters should be careful to include in their comments only 
information that they wish to make publicly available on the 
Internet.


FOR FURTHER INFORMATION CONTACT: Pamela Moran, U.S. Department of 
Education, 1990 K Street, NW., Room 8033, Washington, DC 20006-8502. 
Telephone: (202) 502-7732 or via the Internet at: pamela.moran@ed.gov.
    If you use a telecommunications device for the deaf, call the 
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
    Individuals with disabilities can obtain this document in an 
accessible format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed under FOR FURTHER 
INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Invitation to Comment

    As outlined in the section of this notice entitled ``Negotiated 
Rulemaking,'' significant public participation, through six public 
hearings and three negotiated rulemaking sessions, has occurred in 
developing this notice of proposed rulemaking (NPRM). In accordance 
with the requirements of the Administrative Procedure Act, the 
Department invites you to submit comments regarding these proposed 
regulations on or before August 24, 2009. To ensure that your comments 
have maximum effect in developing the final regulations, we urge you to 
identify clearly the specific section or sections of the proposed 
regulations that each of your comments addresses and to arrange your 
comments in the same order as the proposed regulations.
    We invite you to assist us in complying with the specific 
requirements of Executive Order 12866, including its overall 
requirements to assess both the costs and the benefits of the proposed 
regulations and feasible alternatives, and to make a reasoned 
determination that the benefits of these proposed regulations justify 
their costs. Please let us know of any further opportunities we should 
take to reduce potential costs or increase potential benefits while 
preserving the effective and efficient administration of the programs.
    As noted elsewhere in this NPRM, two of the Department's negotiated 
rulemaking committees considered proposed revisions to 34 CFR 674.51, 
Special Definitions, in Subpart D of the Federal Perkins Loan Program 
regulations. Team I--Loans-Lender General Loan Issues, the negotiating 
committee responsible for regulations involving issues related to 
lender and general loan issues, negotiated the proposed definitions of 
``substantial gainful activity'' and ``permanent and total 
disability.'' Team II--Loans-School-based Loans Issues negotiated all 
other changes in this section.
    We have included all proposed changes to 34 CFR 674.51 in this NPRM 
as well as in the NPRM that we are publishing as a result of the 
negotiations of Team II--School-based Loans Issues. However, we ask 
that when submitting your comments on the proposed changes to 34 CFR 
674.51, you submit any comments on the proposed definitions of 
``substantial gainful activity'' and ``total and permanent disability'' 
in the docket (Docket ID ED-2009-OPE-0004) for this NPRM. Comments on 
all other provisions in this section should be submitted in the docket 
(Docket ID ED-2009-OPE-0003) for the Team II--School-based Loans Issues 
NPRM.
    During and after the comment period, you may inspect all public 
comments about these proposed regulations by accessing Regulations.gov. 
You may also inspect the comments in person in Room 8033, 1990 K 
Street, NW., Washington, DC between the hours of 8:30 a.m. and 4:00 
p.m. Eastern Time, Monday through Friday of each week except Federal 
holidays.

Assistance to Individuals With Disabilities in Reviewing the Rulemaking 
Record

    On request, we will supply an appropriate aid, such as a reader or 
print magnifier, to an individual with a disability who needs 
assistance to review the comments or other documents in the public 
rulemaking record for these proposed regulations. If you want to 
schedule an appointment for this type of aid, please contact the person 
listed under FOR FURTHER INFORMATION CONTACT.

Negotiated Rulemaking

    Section 492 of the HEA requires the Secretary, before publishing 
any proposed regulations for programs authorized by title IV of the 
HEA, to obtain public involvement in the development of the proposed 
regulations. After obtaining advice and recommendations from the 
public, including individuals and representatives of groups involved in 
the Federal student assistance programs, the Secretary must subject the 
proposed regulations to a negotiated rulemaking process. All proposed 
regulations that the Department publishes on which the negotiators 
reached consensus must conform to final agreements resulting from that 
process unless the Secretary reopens the process or provides a written 
explanation to the participants stating why the Secretary has decided 
to depart from the agreements. Further

[[Page 36557]]

information on the negotiated rulemaking process can be found at: 
https://www.ed.gov/policy/highered/leg/hea08/.
    On September 8, 2008, the Department published a notice in the 
Federal Register (73 FR 51990) announcing our intent to establish 
negotiated rulemaking committees to develop proposed regulations to (1) 
implement the changes made to the HEA by the Higher Education 
Opportunity Act of 2008 (HEOA, Pub. L. 110-315) that affected programs 
authorized under title IV of the HEA, and (2) possibly address the 
provision added to section 207(c) of the HEA by the HEOA regarding the 
prohibition on a teacher preparation program from which the State has 
withdrawn approval or terminated financial support from accepting or 
enrolling any student who received title IV aid.
    On December 31, 2008, the Department published a notice in the 
Federal Register (73 FR 80314) announcing our intent to establish up to 
five negotiated rulemaking committees to prepare proposed regulations. 
The notice indicated that no requests from the public were received to 
negotiate the provision added to section 207(c) of the HEA. The 
Secretary determined it was not necessary to issue regulations in that 
area and therefore did not submit that issue to a negotiated rulemaking 
committee. The five committees that were established were: (1) A 
committee on lender and general loan issues (Loans Team I); (2) a 
committee on school-based loan issues (Loans Team II); (3) a committee 
on accreditation; (4) a committee on discretionary grant programs; and 
(5) a committee on general and non-loan programmatic issues. The notice 
informed the public that, due to the large volume of changes made by 
the HEOA that needed to be implemented through negotiated rulemaking, 
not all provisions would be addressed during this round of committee 
meetings. The notice requested nominations of individuals for 
membership on the committees who could represent the interests 
significantly affected by the proposed regulations and had demonstrated 
expertise or experience in the relevant subjects under negotiation.
    Loans Team I met in three sessions to develop proposed regulations: 
Session 1, February 23-25, 2009; session 2, March 30-April 1, 2009; and 
session 3, May 4-6, 2009. These proposed regulations relate to the 
administration of the Federal student loan programs. This NPRM resulted 
primarily from the work of Loans Team I and, in a couple of instances 
where the subject matter of the proposed regulations overlapped, the 
work of Loans Team II.\1\
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    \1\ As discussed elsewhere in this preamble, Loans Team II was 
responsible for negotiating the following provisions, which appear 
in this NPRM: 34 CFR 674.51, definitions of the terms child with a 
disability, community defender organizations, educational service 
agency, faculty member at a Tribal College or University, Federal 
public defender organization, firefighter, infant or toddler with a 
disability, librarian with a master's degree, speech language 
pathologist with a master's degree, and Tribal College or 
University.
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    The Department developed a list of proposed regulatory provisions 
from advice and recommendations submitted by individuals and 
organizations as testimony to the Department in a series of six public 
hearings held on:
     September 19, 2008, at the Texas Christian University, in 
Fort Worth, Texas.
     September 29, 2008, at the University of Rhode Island, in 
Providence, Rhode Island.
     October 2, 2008, at the Pepperdine University, in Malibu, 
California.
     October 6, 2008, at Johnson C. Smith University, in 
Charlotte, North Carolina.
     October 8, 2008, at the U.S. Department of Education, in 
Washington, DC.
     October 15, 2008, at Cuyahoga Community College, in 
Warrensville Heights, Ohio.
    In addition, the Department accepted written comments on possible 
regulations submitted directly to the Department by interested parties 
and organizations. A summary of all comments received orally and in 
writing is posted as background material in the docket for this NPRM. 
Transcripts of the regional meetings can be accessed at: https://www.ed.gov/policy/highered/leg/hea08/. The Department also 
identified issues for discussion and negotiation.
    At its first meeting, the Loans Team I Committee reached agreement 
on its protocols and proposed agenda. The agenda included the statutory 
changes identified for the Committee's consideration. In addition, at 
the second meeting of the Committee, the negotiators agreed by 
consensus to add two additional agenda items affecting the 
determination of eligibility and calculation of borrower payment 
amounts under the income-based repayment plan in the FFEL and Direct 
Loan programs that becomes available to borrowers on July 1, 2009.
    The Loans Team I Committee members (and the organizations they 
represented) included the following:
     Representing students: Jonathan S. Sachs, primary, and 
Adam Briones, alternate (U.S. Public Interest Research Group; United 
States Student Association; University of Maryland Student Government 
Association; The Greenlining Institute);
     Representing legal assistance organizations that represent 
students and borrowers: Deanne Loonin, primary, and Lauren Saunders, 
alternate (National Consumer Law Center);
     Representing 2-year public institutions: George Chin, 
primary (American Association of State Colleges and Universities);
     Representing 4-year public institutions: Carrie Steere-
Salazar, primary, and Kris Wright, alternate (Association of American 
Medical Colleges; National Direct Loan Coalition);
     Representing private, nonprofit institutions of higher 
education: Heather McDonnell, primary, and Bonnie Lee Behm, alternate 
(National Association of Student Financial Aid Administrators; 
Pennsylvania Association of Student Financial Aid Administrators);
     Representing private, for-profit institutions of higher 
education: Thomas A. Babel, primary, and William Leach, alternate 
(DeVry University; Career College Association);
     Representing guaranty agencies: Mary Mowdy, primary, and 
Dick George, alternate (Oklahoma State Regents for Higher Education; 
National Council of Higher Education Loan Programs (NCHELP));
     Representing for-profit lenders: Brenda Dillon, primary, 
and Tom Levandowski, alternate (NCHELP; Consumer Bankers Association);
     Representing not-for-profit lenders: Cheryl Hughes, 
primary, and Scott Giles, alternate (NCHELP; Education Finance Council 
(EFC));
     Representing credit unions: Michael Kim, primary, and 
Rhonda Summerbell, alternate (Coalition of the following credit unions: 
University Federal Credit Union, USC Credit Union, UW Credit Union, 
Navy Federal Credit Union, Notre Dame Federal Credit Union);
     Representing lender servicers: Diane Freundel, primary, 
and Wanda Hall, alternate (EFC; NCHELP; Student Loan Servicing 
Alliance); and
     Representing the U.S. Department of Education: Pam Moran.
    The Committee's protocols provided that the committee would operate 
by consensus, meaning there must be no dissent by any member in order 
for the committee to be considered to have reached agreement. Under the 
protocols, if the Committee reaches final consensus on all issues, the 
Department will use the consensus-based language in the proposed 
regulations and committee members and the

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organizations whom they represent will refrain from commenting 
negatively on the package, except where provided for in the agreed upon 
protocols.
    During its meetings, the Loans Team I Committee reviewed and 
discussed drafts of the proposed regulations. At the final meeting in 
May 2009, the Committee reached consensus on the proposed regulations 
in this document, with the exception of those definitions included in 
34 CFR 674.51 that were negotiated by Loans Team II, as discussed 
elsewhere in this notice.
    In addition to the proposed regulations considered by Loans Team I, 
this NPRM also includes some additional definitions that appear in 34 
CFR 674.51 (Special Definitions). Only the definitions of ``substantial 
gainful activity'' and ``total and permanent disability'' were included 
in the proposed regulations agreed to by Loans Team I. The remaining 
definitions in this section were added or amended as part of the 
negotiations of Loans Team II, but are being included here to provide 
context for the changes to this section.
    Team I and Team II were advised that, to ensure transparency and 
ease of use for public commenters, the Department would propose the 
entirety of 34 CFR part 601 in a single NPRM. Given Team I's consensus, 
which included consensus on the definitions of the terms lender and 
private education loan in proposed Sec.  601.2 as well as the 
requirements in Sec.  601.40, Team I members were advised that they may 
not comment negatively on the provisions they negotiated 
notwithstanding that they would appear in Team II's NPRM. Likewise, 
Team II members were advised that, while they may not comment 
negatively on the majority of proposed 34 CFR part 601 as a result of 
their consensus agreement, they may comment on the definitions of 
lender and private education loan as well as proposed Sec.  601.40.
    With regard to the proposed changes to Sec.  674.51, the Department 
determined that it would be helpful for the public to be able to view 
all proposed changes to this special definitions section for the 
Perkins Program in both Team I's NPRM and Team II's NPRM. Team I and 
Team II were advised that the proposed changes to Sec.  674.51 would 
appear in their entirety in both documents to provide context and 
enhance understanding of both committees' proposed changes to this 
section. Each team was advised by its respective Federal negotiator 
that its consensus agreement did not apply to the definitions 
negotiated by the other team and that any comments they may have on the 
definitions negotiated by the other team should be submitted in 
response to the NPRM published as a result of the other team's 
negotiations.
    More information on the work of Team I can be found at https://www.ed.gov/policy/highered/reg/hearulemaking/2009/loans-lender.html and 
more information on the work of Team II can be found at https://www.ed.gov/policy/highered/reg/hearulemaking/2009/loans-school-based.

Summary of Proposed Changes

    These proposed regulations would implement general and lender-based 
loan provisions of the HEA, as amended by the HEOA, that include:
     A revised definition of ``totally and permanently 
disabled'' for purposes of discharging a borrower's title IV loans and 
a revised disability discharge process;
     Expansion of the conditions under which a borrower with 
only FFEL loans may consolidate those loans into a Direct Consolidation 
Loan;
     Additional disclosures for FFEL and Direct consolidation 
loan applicants, and a new requirement for FFEL Consolidation loan 
lenders to notify borrowers who have applied for a Consolidation loan 
that they may cancel the loan within a specified time period;
     An additional method for granting in-school deferments on 
FFEL or Direct Loan program loans, and a new notification requirement 
for FFEL lenders when granting a borrower a deferment on an 
unsubsidized loan;
     New in-school deferment provisions for PLUS loan borrowers 
and related changes to administrative forbearance provisions;
     Clarification of PLUS loan interest capitalization 
provisions;
     A revised definition of ``partial financial hardship'' for 
purposes of determining eligibility for the income-based repayment 
(IBR) plan in the FFEL and Direct Loan programs, and revised 
regulations for determining the IBR payment amount;
     An expansion of the eligibility requirements for teacher 
loan forgiveness in the FFEL and Direct Loan programs to allow 
borrowers who perform qualifying teaching service at an eligible 
educational service agency to receive forgiveness;
     A revision of the regulations related to loan 
rehabilitation to provide that a FFEL or Direct Loan borrower may 
rehabilitate a defaulted loan only once;
     Revisions to the regulations governing prohibited 
inducements by guaranty agencies and lenders in the FFEL Program;
     Revised and expanded disclosure requirements for FFEL 
Program lenders at the time of or prior to loan disbursement and during 
the loan repayment period;
     An expansion of the information that must be provided to a 
FFEL borrower when the transfer, sale, or assignment of the borrower's 
loan results in a change in the identity of the party to whom payments 
and communications must be sent;
     Revised forbearance disclosure requirements related to 
interest capitalization for FFEL lenders;
     Revised regulations related to the audit requirements for 
a FFEL school lender or an eligible lender trustee that originates FFEL 
loans for a school or school-affiliated organization;
     A new requirement for guaranty agencies to work with the 
schools that they serve to develop and make available to students and 
their families consumer education materials related to budgeting and 
financial management;
     A new requirement for guaranty agencies to make available 
certain financial and economic education materials to borrowers who 
have rehabilitated defaulted loans;
     Revised consumer credit reporting requirements for 
guaranty agencies and prior loan holders after a borrower has 
rehabilitated a defaulted loan; and
     Revised requirements related to the notifications that 
guaranty agencies must send to borrowers with defaulted loans.

Significant Proposed Regulations

    We group major issues according to subject, with appropriate 
sections of the proposed regulations referenced in parentheses, 
beginning with issues that apply to all three title IV loan programs, 
followed by issues that apply to the FFEL and Direct Loan programs, and 
then issues that apply only to the FFEL Program. We discuss substantive 
issues under the sections of the proposed regulations to which they 
pertain. Generally, we do not address proposed regulatory provisions 
that are technical or otherwise minor in effect.

Total and Permanent Disability Loan Discharges

Definitions (Sec. Sec.  674.51 and 682.200(b))

    Statute: Prior to the enactment of the HEOA, the HEA provided that 
a Perkins Loan, FFEL, or Direct Loan could be discharged if the 
borrower had a total and permanent disability as determined in 
accordance with the regulations of the Secretary. The HEOA amended

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sections 437(a) and 464(c)(1)(F) of the HEA to provide for the 
discharge of a borrower's title IV loans if the borrower becomes 
totally and permanently disabled in accordance with the Secretary's 
regulations, or if the borrower is unable to engage in any substantial 
gainful activity by reason of any medically determinable physical or 
mental impairment that can be expected to result in death, has lasted 
for a continuous period of not less than 60 months, or can be expected 
to last for a continuous period of not less than 60 months.
    The HEOA further amended sections 437(a) and 464(c)(1)(F) of the 
HEA by establishing a separate total and permanent disability standard 
for certain veterans. Specifically, the HEA now provides that a 
borrower who is a military veteran is considered totally and 
permanently disabled for title IV loan discharge purposes if the 
borrower provides documentation showing that he or she has been 
determined by the Secretary of Veterans Affairs to be unemployable due 
to a service-connected disability. A borrower who provides such 
documentation is not required to present additional documentation for 
purposes of establishing eligibility for loan discharge based on total 
and permanent disability.
    Current Regulations: The current regulations governing the Perkins, 
FFEL, and Direct Loan programs define ``total and permanent 
disability'' 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. Current regulations do not 
define ``substantial gainful activity.''
    Proposed Regulations: Proposed Sec. Sec.  674.51(aa) and 682.200(b) 
would define total and permanent disability as the condition of an 
individual who: (1) Is unable to engage in any substantial gainful 
activity by reason of any medically determinable physical or mental 
impairment that can be expected to result in death, has lasted for a 
continuous period of not less than 60 months, or can be expected to 
last for a continuous period of not less than 60 months; or (2) is a 
veteran and who has been determined by the Secretary of Veterans 
Affairs to be unemployable due to a service-connected disability.
    The proposed regulations would also add a definition of substantial 
gainful activity in Sec. Sec.  674.51(x) and 682.200(b). The proposed 
definition would specify that substantial gainful activity means a 
level of work performed for pay or profit that involves doing 
significant physical or mental activities, or both.
    Reasons: The proposed regulations reflect the new statutory 
definition of totally and permanently disabled. Although the HEA 
provides that a borrower may be considered totally and permanently 
disabled either in accordance with the Secretary's regulations or under 
the standards specified in sections 437(a) and 464(c)(1)(F) of the HEA 
as described above, the Department has decided to use only the new 
specific statutory substantial gainful activity standard. The 
Department has decided not to add any additional regulatory standards. 
Therefore, the proposed revised definition of total and permanent 
disability reflects only the statutory total and permanent disability 
standards that were added to the HEA by the HEOA.
    The proposed definition of substantial gainful activity is based, 
in part, on the definition of substantial gainful activity that the 
Social Security Administration (SSA) uses in connection with 
determining an individual's eligibility for Social Security disability 
benefits. However, the Department's proposed definition relies solely 
on a medical determination and, unlike SSA's definition, does not 
require a physician to consider whether a borrower can earn more than a 
specified amount. The Department does not believe that, for purposes of 
the discharge, it is necessary for a physician to evaluate whether a 
borrower is able to earn more than a specified amount each year.
    Some of the non-Federal negotiators asked for clarification of the 
reference to work performed ``for profit'' in the proposed definition 
of substantial gainful activity. They expressed concerns that the term 
``profit'' would include income from sources other than employment. The 
Department explained that the reference to work performed for profit 
was borrowed from the SSA's definition of substantial gainful activity 
and is intended to cover self-employed individuals who are not paid by 
an employer. The Department further noted that the proposed definition 
of substantial gainful activity refers to ``work'' performed for pay or 
profit. The term ``work performed for profit'' does not refer to income 
from sources other than employment (including self employment) and non-
employment income will not be considered when determining whether a 
borrower is capable of substantial gainful activity.

Discharge Process for Borrowers Other Than Certain Veterans (Sec. Sec.  
674.61(b), 682.402(c)(2) Through (c)(7), and 685.213(b))

    Statute: Sections 437(a)(1) and 464(k) of the HEA, as amended by 
the HEOA, provide for the discharge of a borrower's title IV loans if 
the borrower becomes totally and permanently disabled. Those provisions 
also authorize the Secretary to promulgate regulations to reinstate a 
borrower's obligation to repay a loan that was discharged due to 
disability if, after the discharge, the borrower receives another title 
IV loan or has earned income in excess of the poverty line, or under 
other circumstances that the Secretary determines to be necessary.
    Current Regulations: Under current regulations, a borrower applies 
for a total and permanent disability discharge of a title IV loan by 
submitting a completed loan discharge application that has been 
certified by a physician to the borrower's loan holder. For Perkins 
Loans, the loan holder is the Perkins school lender. For FFEL loans, 
the holder is the lender or, if a default claim has been paid on the 
loan, the guaranty agency. For Direct Loans and for Perkins or FFEL 
loans that have been assigned to the Secretary, the loan holder is the 
Department.
    For a Perkins loan held by a school, if the loan holder determines 
that the information provided on the discharge application supports the 
conclusion that the borrower is totally and permanently disabled in 
accordance with the current regulatory definition, the loan holder 
assigns the loan to the Secretary.
    For a FFEL loan that is held by a lender, if the lender determines 
that the discharge application supports the conclusion that the 
borrower is totally and permanently disabled, the lender files a 
disability discharge claim with the guaranty agency. The guaranty 
agency reviews the borrower's application, and if the guaranty agency 
concurs with the lender's preliminary determination of discharge 
eligibility, it pays the lender's discharge claim and assigns the loan 
to the Secretary.
    Once the loan has been assigned, the Secretary reviews the loan 
discharge application and makes an initial determination of the 
borrower's eligibility for discharge. For Direct Loans or for Perkins 
or FFEL loans that were already held by the Secretary, the Secretary's 
review is the initial review of the borrower's loan discharge 
application.
    If the Secretary concludes that the information on the discharge 
application does not support the conclusion that the borrower is 
eligible for a total and permanent disability discharge, the Secretary 
notifies the borrower that the discharge request has been denied and 
that the loan is due and payable to the Secretary under the

[[Page 36560]]

terms and conditions of the promissory note.
    If the Secretary determines that the borrower appears to meet the 
eligibility requirements for a total and permanent disability 
discharge, the Secretary grants the borrower a conditional discharge 
for a period of up to three years, beginning on the date the physician 
certified the borrower's discharge application. During the conditional 
discharge period, the borrower is not required to make any payments on 
the loan and no interest accrues on the loan. The Secretary grants a 
final discharge if, during and at the end of the conditional discharge 
period, the borrower: (1) Does not receive a new title IV loan or a 
Teacher Education Assistance for College and Higher Education (TEACH) 
Grant; (2) does not have earnings from employment that exceed the 
poverty line amount for a family of two; and (3) ensures that the full 
amount of any title IV loan disbursement made after the physician's 
certification date for a loan the borrower received prior to the 
physician's certification date is returned to the holder within 120 
days of the disbursement date. After granting a final discharge of a 
loan, the Secretary returns to the sender any payments on the loan that 
were received after the physician's certification date.
    If at any time during or at the end of the conditional discharge 
period the borrower fails to meet one of the requirements for a final 
discharge, the Secretary ends the conditional discharge period and 
resumes collection activity on the loan. The borrower is not charged 
interest for the period during which the loan was conditionally 
discharged.
    Proposed Regulations: The proposed regulations would establish two 
separate loan discharge processes, one for veterans who have been 
determined by the Secretary of Veterans Affairs to be unemployable due 
to a service-connected disability, and a different process (the general 
discharge process) for borrowers who have been determined (as certified 
by a physician) to be unable to engage in substantial gainful activity 
due to a physical or mental impairment that can be expected to result 
in death or that has lasted for a continuous period of not less than 60 
months, or that can be expected to last for a continuous period of not 
less than 60 months. The discharge process for veterans who have been 
determined to be unemployable due to a service-connected disability is 
discussed below under the heading ``Discharge Process for Veterans Who 
Have Been Determined to be Unemployable Due to a Service-Connected 
Disability.'' This section covers the general discharge process for 
other borrowers.
    The general discharge process included in these proposed 
regulations is similar in some respects to the discharge process under 
the current regulations. However, instead of using the current 
conditional discharge process, the Secretary would discharge a 
borrower's obligation to repay a loan after determining that the 
borrower meets the discharge eligibility requirements. The Secretary 
would then reinstate the borrower's obligation to repay the loan if the 
borrower fails to meet certain requirements during a post-discharge 
monitoring period.
    Under the proposed regulations, a borrower who wishes to apply for 
a total and permanent disability loan discharge would submit to his or 
her loan holders a completed loan discharge application that has been 
certified by a physician. The loan holder review process would be the 
same as under the current regulations. If the loan holder and, if 
applicable, the guaranty agency determine that the information provided 
on the discharge application supports the conclusion that the borrower 
is totally and permanently disabled in accordance with the regulatory 
definition, the loan would be assigned to the Secretary, as under the 
current regulations. The Secretary would then review the loan discharge 
application and make a determination of the borrower's eligibility for 
discharge. As under the current regulations, the Secretary's review 
would be the initial review of the borrower's discharge application in 
the case of a Direct Loan or a Perkins or FFEL loan that is already 
held by the Secretary.
    If the Secretary concludes that the information on the discharge 
application does not support the conclusion that the borrower is 
eligible for a total and permanent disability loan discharge, the 
Secretary would notify the borrower that the discharge request has been 
denied and that the loan is due and payable to the Secretary under the 
terms and conditions of the promissory note.
    Under the proposed regulations, if the Secretary determines that 
the borrower meets the eligibility requirements for a total and 
permanent disability discharge, the Secretary would grant a final 
discharge and return to the sender any payments on the loan that were 
received after the physician's certification date. At the same time, 
the Secretary would notify the borrower that the borrower's obligation 
to repay the loan will be reinstated if, within three years from the 
discharge date, the borrower: (1) Receives a new title IV loan or TEACH 
Grant; (2) has earnings from employment that exceed the poverty line 
amount for a family of two; or (3) fails to ensure that the full amount 
of any title IV loan or TEACH Grant disbursement made after the 
discharge date for a loan or TEACH Grant the borrower received prior to 
the discharge date is returned to the holder or to the Secretary, as 
applicable, within 120 days of the disbursement date. If a borrower's 
obligation to repay a loan is reinstated, the borrower is not charged 
interest for the period from the discharge date to the date of the 
reinstatement.
    The proposed regulations would also provide that, if a borrower 
received a title IV loan or TEACH Grant before the date the physician 
certified the loan discharge application and a disbursement of that 
loan or grant is made after the date of the physician's certification 
but before the date the Secretary grants the discharge, the processing 
of the borrower's loan discharge request will be suspended until the 
borrower ensures that the full amount of the disbursement has been 
returned to the loan holder or to the Secretary, as applicable.
    Finally, the proposed regulations would provide that if a 
borrower's obligation to repay a loan is reinstated after a total and 
permanent disability discharge, the Secretary will notify the borrower 
of the reinstatement. The notification will provide the borrower with 
the reason or reasons for the reinstatement, an explanation that the 
first loan payment following reinstatement will be due no earlier than 
60 days after the date of the notification, and information on how the 
borrower may contact the Department if the borrower has questions about 
the reinstatement or believes that the obligation to repay the loan was 
reinstated based on incorrect information.
    Reasons: The proposed regulations reflect the statutory provisions 
that authorize the Secretary to reinstate a borrower's obligation to 
repay a previously discharged loan under certain conditions. Under the 
proposed regulations, the general discharge process would, in many 
respects, be similar to the discharge process under the current 
regulations. The non-Federal negotiators were generally supportive of 
this approach. The most significant difference between the proposed and 
current regulations is that the current conditional discharge process 
will be replaced by a process in which the Secretary discharges the 
borrower's obligation to repay the loan after determining that the 
borrower is totally

[[Page 36561]]

and permanently disabled, but reinstates the borrower's repayment 
obligation if the borrower fails to meet certain requirements during a 
3-year post-discharge monitoring period. The proposed 3-year post-
discharge monitoring period is consistent with the current 3-year 
conditional discharge period, and the conditions that would result in 
the reinstatement of a borrower's obligation to repay a previously 
discharged loan are essentially the same as the conditions that, under 
the current regulations, result in a conditionally discharged loan 
being returned to repayment status.
    The Department initially proposed a 5-year post-discharge 
monitoring period and also proposed that upon the reinstatement of a 
borrower's obligation to repay a previously discharged loan for failure 
to meet one of the post-discharge requirements, the borrower would be 
charged interest for the period from the date of discharge to the 
reinstatement date. The non-Federal negotiators did not support these 
proposals. Some negotiators questioned the basis for having a 5-year 
post-discharge monitoring period, since under current regulations the 
conditional discharge period is only three years. With regard to the 
Department's initial proposal to charge interest from the discharge 
date if a borrower's obligation to repay a discharged loan is 
reinstated, the non-Federal negotiators noted that, under current 
regulations, a borrower is not charged interest from the conditional 
discharge date if a conditionally discharged loan is returned to 
repayment status before the end of the conditional discharge period. 
After further consideration of the non-Federal negotiators' concerns, 
the Department revised the proposed regulations by changing the post-
discharge monitoring period from five years to three years, and by 
removing the provision that would have required a borrower to pay 
interest from the date of discharge if the borrower's repayment 
obligation is reinstated.
    The Department also initially proposed that one of the conditions 
for reinstatement of a borrower's obligation to repay a previously 
discharged loan would be if the borrower had annual earnings from 
employment during the post-discharge monitoring period that exceeded 
the poverty guideline amount for the borrower's family size. Current 
regulations provide that a conditionally discharged loan is returned to 
repayment status if the borrower has employment earnings during the 
conditional discharge period that exceed the poverty guideline amount 
for a family of two, regardless of the borrower's actual family size. 
The Department believed that the proposed change to a standard based on 
the borrower's actual family size would be more equitable, as it would 
allow a borrower with a family size greater than two to have a higher 
level of employment earnings during the post-discharge monitoring 
period without being subject to reinstatement of the borrower's 
repayment obligation on the discharged loan. However, some non-Federal 
negotiators expressed concerns that the proposed change to an 
employment earnings standard based on actual family size would be 
confusing to borrowers, since a borrower's family size could change 
during the post-discharge monitoring period. These non-Federal 
negotiators believed that it would be preferable to maintain the 
current standard based on a family size of two, so that a borrower 
would not need to monitor changes in the employment earnings limit if 
the borrower's family size increased or decreased during the post-
discharge monitoring period. The Department agreed.
    The Department's initial proposed regulations did not include a 
provision comparable to the provision in current regulations that 
addresses the treatment of a title IV loan disbursement made during the 
conditional discharge period for a loan the borrower received prior to 
the physician's certification date. Under the current regulations, a 
borrower is ineligible for a final discharge unless the borrower 
ensures that such a disbursement is returned to the loan holder within 
120 days of the disbursement date. The Department initially did not 
include a similar provision in the proposed regulations because the 
current regulatory provision is tied to the conditional discharge 
period, which would be eliminated under the proposed regulations. Under 
the proposed regulations, the post-discharge monitoring period begins 
on a later date than the current conditional discharge period, and a 
disbursement of a title IV loan received prior to the physician's 
certification date is less likely to occur. However, some non-Federal 
negotiators noted that this situation could still arise under the 
proposed regulations and recommended that the proposed regulations be 
revised to include a provision comparable to the provision in the 
current regulations. The Department agreed. The proposed regulations 
would provide that a borrower's obligation to repay a discharged loan 
will not be reinstated if the borrower ensures that a title IV loan or 
TEACH Grant disbursement made during the post-discharge monitoring 
period for a loan or TEACH Grant received prior to the discharge date 
is returned to the loan holder within 120 days of the disbursement 
date. The proposed regulations would include TEACH Grant disbursements 
in this provision because a condition for receiving a TEACH Grant is 
that the student must agree to complete a teaching service obligation. 
A student who accepts a TEACH Grant presumably would not be totally and 
permanently disabled, as this condition would preclude the student from 
completing the TEACH Grant service obligation.
    The Committee also discussed the possible effect on a borrower's 
discharge request of a disbursement being made during the period 
between the physician's certification date and the discharge date for a 
loan or TEACH Grant received prior to the physician's certification 
date. This issue does not arise under the current regulations because 
of the structure of the conditional discharge period. Based on these 
discussions, the Department revised the proposed regulations to provide 
that if a disbursement of a title IV loan or TEACH Grant is made during 
the period between the physician's certification date and the discharge 
date, the processing of the borrower's loan discharge request will be 
suspended until the borrower ensures that the disbursement is returned 
to the loan holder or the Secretary, as applicable.
    Finally, some of the non-Federal negotiators expressed concern that 
the Department's initial proposal did not explicitly provide that the 
Secretary would notify a borrower who fails to meet one of the 
eligibility requirements during the post-discharge monitoring period 
that the borrower's obligation to repay the discharged loan has been 
reinstated. The Department's regulations generally do not specifically 
address the actions of the Department, but the non-Federal negotiators 
strongly urged the Department to include such a provision in the 
proposed regulations. These negotiators also requested that the 
proposed regulations specify that the Secretary's notification of 
reinstatement will tell borrowers the reason for the reinstatement and 
provide the borrower with information on how to contact an appropriate 
office or official if they have questions or believe that the 
reinstatement was based on incorrect information. The Department agreed 
to add to the proposed regulations a provision stating that the 
Secretary will notify a borrower that his or her obligation to repay a 
previously

[[Page 36562]]

discharged loan has been reinstated. The proposed regulations also 
provide that the notification of reinstatement will include the reason 
or reasons for the reinstatement, an explanation that the first payment 
due date on the loan following reinstatement will be no earlier than 60 
days after the date of the notification of reinstatement, and 
information on how the borrower may contact the Department if he or she 
has questions about the reinstatement or believes that the obligation 
to repay the loan was reinstated based on incorrect information.
    The Department also agreed to take steps to further improve its 
notices to borrowers who have applied for or received disability 
discharges under the proposed regulations to more clearly explain the 
discharge process and the borrower's rights and responsibilities with 
respect to that process. In particular, the Department intends to take 
steps to develop a process to acknowledge receipt of a borrower's 
submission of a request that the Department reconsider its 
determination and to provide borrowers with information on the 
Secretary's process for considering such requests and how the borrower 
will be made aware of the Secretary's decision.

Discharge Process for Veterans Who Have Been Determined To Be 
Unemployable Due to a Service-Connected Disability (Sec. Sec.  
674.61(c), 682.402(c)(8), and 685.213(c))

    Statute: The HEOA added sections 437(a)(2) and 464(c)(1)(F)(iv) to 
the HEA to provide that a borrower who has been determined by the 
Secretary of Veterans Affairs (VA) to be unemployable due to a service-
connected disability and who provides documentation of that 
determination to the Secretary is to be considered totally and 
permanently disabled for the purpose of discharging the borrower's 
title IV loans. Section 437(a)(2) of the HEA further specifies that a 
borrower who provides such documentation may not be required to present 
additional documentation for the purpose of determining eligibility for 
a total and permanent disability loan discharge.
    Proposed Regulations: The proposed regulations would establish a 
separate discharge application process for borrowers who provide 
documentation showing that they have been determined by the VA to be 
unemployable due to a service-connected disability. Under the proposed 
regulations, the borrower would submit to the loan holder a loan 
discharge application accompanied by documentation from the VA showing 
that the borrower has been determined to be unemployable due to a 
service-connected disability. The borrower would not be required to 
have a physician certify the loan discharge application, and would not 
be required to provide any additional documentation related to the 
borrower's service-connected disability.
    If the documentation from the VA does not indicate that the 
borrower has been determined to be unemployable due to a service-
connected disability, the loan holder would deny the borrower's 
discharge request. However, if the documentation indicates that the 
borrower may be totally and permanently disabled under the general 
definition of a total and permanent disability, the loan holder would 
inform the borrower that he or she may reapply for a loan discharge 
under the general procedures for a disability discharge.
    If the documentation indicates that the VA has determined that a 
Perkins Loan borrower is unemployable due to a service-connected 
disability, the Perkins school loan holder would submit a copy of the 
borrower's discharge application and supporting documentation to the 
Secretary, and would notify the borrower that the discharge request has 
been referred to the Secretary for a determination of eligibility. In 
the case of a FFEL loan that is held by a lender, the lender would 
refer the borrower's application to the guaranty agency and file a 
disability discharge claim with the agency. If the guaranty agency 
agrees that the VA documentation shows the borrower has been determined 
to be unemployable due to a service-connected disability, the guaranty 
agency would refer the borrower's application to the Secretary. In 
contrast to the general discharge procedures, the borrower's loan would 
not be assigned to the Secretary.
    Under the proposed regulations, if the Secretary determines that 
the borrower meets the total and permanent disability standard based on 
a determination by the VA that the borrower is unemployable due to a 
service-connected disability, the Secretary would notify the Perkins 
Loan school or guaranty agency that the borrower is eligible for a 
total and permanent disability loan discharge. The Perkins Loan school 
would then discharge the borrower's loan and return to the sender any 
payments on the loan that were received on or after the effective date 
of the VA's determination that the borrower is unemployable due to a 
service-connected disability. The guaranty agency would pay the 
lender's disability discharge claim and notify the borrower that the 
borrower's obligation to make any further payments on the loan has been 
discharged. Upon receipt of the claim payment from the guaranty agency, 
the lender would return any payments on the loan received on or after 
the effective date of the VA's determination to the person who made the 
payments. There would be no post-discharge monitoring period for a 
borrower who receives a total and permanent disability discharge 
through this process, and the borrower would not be subject to 
reinstatement of his or her obligation to repay the discharged loan 
based on post-discharge employment earnings or receipt of a new title 
IV loan or TEACH Grant. The same discharge process would apply to 
borrowers with Direct Loans or Perkins or FFEL loans that are held by 
the Department.
    If the Secretary determines, based on a review of the documentation 
from the VA, that the borrower does not meet the standard for a 
disability discharge, the Secretary would notify the Perkins Loan 
school or guaranty agency of that decision, and collection on the loan 
would resume.
    Reasons: The proposed regulations are necessary to implement the 
statutory total and permanent disability discharge standard for certain 
veterans.

Borrower Eligibility for New Title IV Loans After a Prior Total and 
Permanent Disability Discharge (Sec. Sec.  674.9(g), 682.201(a), and 
685.200(a))

    Statute: The HEA does not specify eligibility requirements for 
borrowers who apply for a new title IV loan after a prior loan has been 
discharged due to a total and permanent disability.
    Current Regulations: Under the current regulations in the Perkins, 
FFEL, and Direct Loan programs, a borrower whose prior title IV loan 
was discharged due to a total and permanent disability must meet 
certain requirements before receiving a new loan. Specifically, the 
borrower must: (1) Provide a certification from a physician that the 
borrower is able to engage in substantial gainful activity; and (2) 
sign a statement acknowledging that any new loan the borrower receives 
cannot be discharged in the future based on any present condition, 
unless that condition substantially deteriorates. In addition, if a 
borrower's prior loan is in a conditional discharge status, the 
conditionally discharged loan must be returned to repayment status 
before the borrower may receive a new loan.
    Proposed Regulations: The proposed regulations would retain the 
current requirement that, to receive a new title IV loan after a 
disability discharge, a borrower would have to obtain a

[[Page 36563]]

certification from a physician that the borrower is able to engage in 
substantial gainful activity, and acknowledge that the new loan may not 
be discharged in the future based on any present condition unless the 
condition substantially deteriorates. The proposed regulations would 
also provide that if a borrower receives a new title IV loan within 
three years of the date that a prior title IV loan or TEACH Grant 
service obligation was discharged on the basis of the borrower's 
disability, the borrower would be required to resume repayment on the 
previously discharged loan or acknowledge that he or she is again 
subject to the terms of the TEACH Grant agreement to serve before 
receiving the new loan.
    The current total and permanent disability discharge regulations 
will continue to apply to any borrower whose loan discharge application 
is received prior to the effective date of any final regulations 
published as a result of this NPRM. Therefore, the proposed regulations 
would retain the current provision that requires a loan in a 
conditional discharge status to be returned to repayment status before 
a borrower who received a conditional discharge may receive a new loan.
    Reasons: The changes to the borrower eligibility regulations are 
conforming changes that are needed to effectively implement the new 
total and permanent disability loan discharge process.

Consolidation Loans (Sec. Sec.  682.201(e), 682.206(f) and 685.220(d))

    Statute: The HEOA amended sections 428C(a)(3)(B)(i)(V) and 
428C(b)(5) of the HEA to provide that FFEL loan borrowers may 
consolidate their loans into a Direct Consolidation Loan for the 
purpose of using the no interest accrual benefit for active duty 
service members, which is only available in the Direct Loan Program. 
This benefit provides that interest will not accrue on the Direct Loan 
of an eligible military borrower for a period of not more than 60 
months while the borrower is serving on active duty during a war or 
other military operation or national emergency, or performing 
qualifying National Guard duty during a war or other military operation 
or national emergency, and is serving in an area of hostilities in 
which service qualifies for special pay under section 310 of title 37 
of the United States Code.
    The HEOA also amended section 433 of the HEA by adding a separate 
set of disclosures for Consolidation loan borrowers. At the time a 
lender provides a Consolidation loan application to a prospective 
borrower, it must provide specific information about Consolidation 
loans. In particular, a lender must inform the borrower that by 
applying for a Consolidation loan, the borrower is not obligated to 
take the loan.
    Current regulations: Section 682.201 of the regulations establishes 
the eligibility requirements for borrowers seeking a FFEL Consolidation 
loan. Section 685.220 of the current regulations establishes the 
eligibility requirements for a borrower seeking a Direct Consolidation 
Loan. Current regulations permit borrowers who have only FFEL loans to 
consolidate those loans into a Direct Consolidation Loan to obtain an 
income contingent repayment plan or to qualify for the Public Service 
Loan Forgiveness Program. In addition, FFEL borrowers whose loans have 
been submitted to the guaranty agency for default aversion assistance 
may apply for a Direct Consolidation Loan.
    Section 682.206(f) of the current regulations includes requirements 
for lenders in the making of FFEL Consolidation loans. Those 
requirements include the requirement that the lender obtain lender 
verification certifications from the holders of the loans to be repaid 
by the Consolidation loan.
    Proposed regulations: The proposed regulations would amend 
Sec. Sec.  682.201(e) and 685.220(d) to include an additional condition 
under which a borrower with only FFEL loans may consolidate those loans 
into a Direct Consolidation Loan. The proposed regulations would 
provide that a borrower with only FFEL loans may consolidate into the 
Direct Loan Program to use the no accrual of interest benefit for 
active duty military service personnel.
    The proposed regulations would also incorporate into the 
regulations a statutory change made by the College Cost Reduction and 
Access Act of 2007 (CCRAA) that is not currently reflected in the 
Department's regulations. Specifically, the proposed regulations would 
provide that a borrower may consolidate a FFEL Consolidation loan into 
the Direct Loan Program without including another eligible loan in the 
consolidation if the FFEL Consolidation loan is in default, or if the 
borrower wishes to obtain an income-based repayment plan.
    The proposed regulations would also modify section 682.206(f) to 
incorporate a new requirement that is needed to fully implement Sec.  
682.205(i)(7), which requires lenders to inform borrowers that, by 
applying for the Consolidation loan, the borrower is not obligated to 
agree to take the loan. Section 682.206(f) would be amended to include 
a requirement that the lender provide a Consolidation loan borrower a 
period of not less than 10 days, from the date the borrower is notified 
by the lender that it is ready to make the Consolidation loan, to 
cancel the loan. The proposed regulations would require the lender to 
send the notice of the option to cancel the loan to the borrower before 
making any payments to pay off a loan with the proceeds of a 
Consolidation loan.
    Reasons: The proposed changes to Sec. Sec.  682.201(e) and 
685.220(d) are being made to implement statutory requirements. The 
proposed change to Sec.  682.206(f) is being made to ensure that 
borrowers are given an appropriate opportunity to cancel a 
Consolidation loan for which they may have applied.
    The HEOA instituted several new disclosure requirements for lenders 
and established very specific disclosures requirements for lenders 
making a Consolidation loan. In particular, the HEOA requires a lender 
to inform a Consolidation loan applicant that applying for the loan 
does not obligate the borrower to agree to take the loan. The 
Department determined that it was important to ensure that borrowers 
are given both a clear explanation of the process for canceling a 
Consolidation loan and the time frame within which they may exercise 
their right to cancel the loan. Therefore, the Department is proposing 
language in Sec.  682.206(f) providing borrowers with a 10-day period, 
before a Consolidation loan is made, during which the borrower could 
reconsider the Consolidation loan and cancel the loan if appropriate.
    There were a number of issues raised by the negotiators regarding 
this provision. Some non-Federal negotiators expressed concern about 
the Department's original proposal to provide a five-day period for a 
borrower to cancel the loan with the lender. These non-Federal 
negotiators did not think the initial proposal provided enough clarity 
as to the date on which the five-day period would begin. One non-
Federal negotiator indicated that the consolidation process is highly 
automated and if the servicer of the loans to be consolidated is also 
the servicer or lender for the Consolidation loan, the loan process 
could be completed in as little as 24-48 hours. The Department was 
asked to provide an opportunity for a borrower to waive his or her 
right to cancel the loan to allow the process to occur more quickly if 
the borrower chose to do so.
    During the negotiations, the Department described how the Direct 
Loan Program currently provides borrowers an opportunity to affirm 
their decision to take a Consolidation loan.

[[Page 36564]]

Based on the practice in the Direct Loan Program, the Department 
proposed revised language establishing a timeframe for a borrower to 
cancel a Consolidation loan that would be similar to the timeframe in 
the Direct Loan Program, and that would be clear and understandable to 
all participants. The language in proposed Sec.  682.206(f)(ii) 
reflects the revised proposal.
    The Department strongly believes that the HEA clearly intends that 
a standard process should be established to provide a Consolidation 
loan applicant with the opportunity to cancel the application for the 
loan. The Department believes the proposed regulatory language reflects 
an appropriate balance between allowing the borrower sufficient time to 
make an informed determination about moving forward with the process 
for a Consolidation loan while not unnecessarily delaying its 
completion. The Department does not agree with the recommendation that 
the regulations provide an opportunity for a borrower to waive the 
right to cancel a Consolidation loan if the borrower wants the 
consolidation process to occur more quickly. The Department believes 
that the 10-day cancellation period provides appropriate protection to 
the borrower. Accordingly, under the proposed regulations, the 10-day 
cancellation period may not be waived by the borrower.
    One non-Federal negotiator asked if the proposed cancellation 
notification requirement would apply to a request by a borrower to add 
loans to an existing Consolidation loan during a 180-day period as 
permitted by the HEA. The negotiator was concerned that if the 
requirement applied to requests to add loans to an existing 
Consolidation loan, it could have a negative consequence to a borrower 
if a loan was inadvertently left out of the consolidation process and 
simply needed to be added. The Department agreed that once the loan is 
made, the 10-day waiting period does not apply if the borrower adds 
additional loans during the permitted 180-day period.

In-School Deferments, Interest Capitalization, and Administrative 
Forbearance for PLUS Loans (Sec. Sec.  682.202(b), 682.210(v), 
682.211(f), 685.202(b), 685.204(g), and 685.205(b))

    Statute: Section 428B(d) of the HEA, as amended by the HEOA, adds 
new in-school deferment provisions for PLUS loans first disbursed on or 
after July 1, 2008. Specifically, the HEA provides that a parent PLUS 
borrower may defer repayment of a PLUS loan first disbursed on or after 
July 1, 2008 during the period while the student on whose behalf the 
loan was obtained is enrolled at an eligible institution on at least a 
half-time basis, and during the 6-month period that begins on the later 
of the day after the student ceases to be enrolled on at least a half-
time basis or, if the parent borrower is also a student, the day after 
the parent ceases to be enrolled on at least a half-time basis. A 
graduate or professional student PLUS borrower may defer repayment of a 
PLUS loan first disbursed on or after July 1, 2008 during the 6-month 
period that begins on the day after the student ceases to be enrolled 
at an eligible institution on at least a half-time basis.
    The HEA does not address the capitalization of interest on a PLUS 
loan that accrues during the period from the date of the first 
disbursement until the date the repayment period begins.
    Current Regulations: Current regulations do not address the 
capitalization of interest on a PLUS loan th