Institutions and Lender Requirements Relating to Education Loans, Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program, 55626-55668 [E9-25073]

Agencies

• DEPARTMENT OF EDUCATION

[Federal Register Volume 74, Number 207 (Wednesday, October 28, 2009)]
[Rules and Regulations]
[Pages 55626-55668]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-25073]



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Part II





Department of Education





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34 CFR Parts 601, 668, 674, et al.



Institutions and Lender Requirements Relating to Education Loans, 
Student Assistance General Provisions, Federal Perkins Loan Program, 
Federal Family Education Loan Program, and William D. Ford Federal 
Direct Loan Program; Final Rule

Federal Register / Vol. 74, No. 207 / Wednesday, October 28, 2009 / 
Rules and Regulations

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DEPARTMENT OF EDUCATION

[Docket ID ED-2009-OPE-0003]

34 CFR Parts 601, 668, 674, 682, and 685

RIN 1840-AC95


Institutions and Lender Requirements Relating to Education Loans, 
Student Assistance General Provisions, 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: Final regulations.

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SUMMARY: The Secretary establishes new regulations regarding 
Institutions and Lender Requirements Relating to Education Loans, to 
implement requirements relating to education loans that were added to 
the Higher Education Act of 1965, as amended (HEA) by the Higher 
Education Opportunity Act of 2008 (HEOA). The Secretary also amends the 
regulations for Student Assistance General Provisions, the Federal 
Perkins Loan (Perkins Loan) Program, the Federal Family Education Loan 
(FFEL) Program, and the William D. Ford Federal Direct Loan (Direct 
Loan) Program to implement certain provisions of the HEA that involve 
school-based loan issues and that were affected by the statutory 
changes made to the HEA by the HEOA.

DATES: Effective Date: These regulations are effective July 1, 2010.
    Implementation Date: The Secretary has determined, in accordance 
with section 482(c)(2)(A) of the HEA (20 U.S.C. 1089(c)(2)(A)), that 
institutions, lenders, guaranty agencies, or servicers may, at their 
discretion, choose to implement the following new and amended 
provisions(as appropriate):
    Sections 601.11(a), (b), and (c), which describe the private 
education loan disclosures.
    Section 601.12 describing the use of institution and lender name.
    Section 601.21 describing the content of the code of conduct.
    Section 601.40(a), which requires certain lender disclosures to 
borrowers.
    Section 668.16(d)(2), which requires institutions to report on 
reimbursements received for certain service on advisory boards.
    Section 668.42(a)(4), which requires institutions to describe for 
prospective and enrolled students the terms and conditions of the loans 
students receive under the FFEL, Direct Loan, and Perkins Loan 
programs.
    Section 674.12(a) and (b), which increases undergraduate and 
graduate student annual and aggregate loan maximums in the Perkins Loan 
Program.
    Section 674.33(d), which eliminates the requirement that a borrower 
make a ``written'' request in order to obtain a forbearance on his or 
her Perkins Loan, and that the institution confirm the terms of the 
forbearance by notice to the borrower and record the terms in the 
borrower's file.
    Section 674.39(a)(2), which changes the number of consecutive on-
time, monthly payments a borrower must make to successfully 
rehabilitate a defaulted Perkins Loan from 12 to 9.
    Sections 674.42(b), 682.604(g), and 685.304(b), which modify the 
exit counseling provisions.
    Sections 674.53, 674.57, 674.58, and 674.59, which expand the 
existing cancellation provisions for certain teachers, Head Start 
employees, law enforcement employees, and military personnel.
    Sections 682.604 and 685.304, which modify the entrance counseling 
provisions.
    For further information, see the section entitled Implementation 
Date of These Regulations in the SUPPLEMENTARY INFORMATION section of 
this preamble.

FOR FURTHER INFORMATION CONTACT: For information related to Part 601--
Institution and Lender Requirements Relating to Education Loans, Gail 
McLarnon or Brian Smith. Telephone: (202) 219-7048 or (202) 502-7551 or 
via the Internet at: Gail.McLarnon@ed.gov or Brian.Smith@ed.gov.
    For information related to Program Participation Agreements and 
Standards of Administrative Capability, Marty Guthrie. Telephone: (202) 
219-7031 or via the Internet at: Marty.Guthrie@ed.gov.
    For information related to Exit and Entrance Counseling, Brian 
Smith. Telephone: (202) 502-7551 or via the Internet at 
Brian.Smith@ed.gov.
    For information related to Cohort Default Rates, John Kolotos. 
Telephone: (202) 502-7762 or via the Internet at John.Kolotos@ed.gov.
    For information related to Perkins Loan Program Cancellation 
Provisions, Vanessa Freeman. Telephone: (202) 502-7523 or via the 
Internet at Vanessa.Freeman@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 one of the contact persons listed under FOR 
FURTHER INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION: On July 28, the Secretary published a notice 
of proposed rulemaking (NPRM) for the Institutions and Lender 
Requirements Relating to Education Loans, the Student Assistance 
General Provisions, and for the Perkins Loan, FFEL and Direct Loan 
Programs in the Federal Register (74 FR 37432).
    In the preamble to the NPRM, the Secretary discussed on pages 37434 
through 37457 the major regulations proposed in that document to 
implement the provisions of the HEOA, including the following:
     Amending Sec. Sec.  668.181, 668.184, 668.185, 668.186, 
668.187, 668.188, 668.190, 668.191, 668.192, 668.193, 668.196, 668.198, 
and adding new Sec. Sec.  668.200, 668.201, 668.202, 668.203, 668.204, 
668.205, 668.206, 668.207, 668.209, 668.210, 668.211, 668.212, 668.213, 
668.214, 668.215, 668.216, and 668.217 to reflect an increase in the 
period used to calculate the cohort default rate (CDR) from 2 to 3 
years effective for CDRs calculated for fiscal year 2009 and subsequent 
years, the requirement that an institution whose CDR is greater than or 
equal to 30 percent for any fiscal year establish a default prevention 
plan, and an increase from 25 to 30 percent in the threshold default 
that would render an institution ineligible to participate in the Pell, 
FFEL, and Direct Loan Programs (see section 435(a) and (m) of the HEA);
     Amending Sec. Sec.  674.42(b), 682.604(g), and 685.304(b) 
to reflect the expansion of exit counseling requirements in the title 
IV, HEA loan programs (see section 485(b)(1)(A) of the HEA);
     Amending Sec. Sec.  682.604 and 685.304 to reflect the 
expansion of entrance counseling requirements in the FFEL and Direct 
Loan Programs (see section 485(l) of the HEA);
     Amending Sec.  668.14 to add to the conditions an 
institution must agree to in its program participation agreement with 
the Secretary of Education (the agreement between the institution and 
the Department that enables the institution to participate in the loan 
programs under Title IV of the HEA). These conditions include: (1) A 
requirement that an institution develop, publish, administer and 
enforce a code of conduct with respect to its FFEL Program activities 
(see section 487(a)(25) of the HEA); (2) a requirement that an 
institution compile, maintain and make available to students

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and their families a list of its preferred lenders if it enters into 
any preferred lender arrangement (see section 487(a)(27) of the HEA); 
and (3) a requirement that an institution, upon the request of an 
applicant of a private education loan, provide the applicant with the 
private education loan certification form developed by the Secretary 
(see section 487(a)(28) of the HEA);
     Adding new Sec. Sec.  601.2, 601.11, and 601.30 to reflect 
the requirements for education loan borrower disclosures by 
institutions of higher education, and institution affiliated 
organizations, including definitions (see sections 151 through 155, 
487(a) and 487(h) of the HEA);
     Adding a new Sec.  601.10 to add the borrower disclosures 
by covered institutions and institution-affiliated organizations that 
participate in a preferred lender arrangement (see section 153(c) of 
the HEA);
     Adding a new Sec.  601.20 to add the reporting 
requirements for covered institutions and institution-affiliated 
organizations (see section 153(c)(2) of the HEA);
     Adding a new Sec.  668.42 to add information dissemination 
requirements for prospective and enrolled students regarding the terms 
and conditions of title IV, HEA loans (see section 485(a) of the HEA);
     Adding a new Sec.  668.16(d)(2) to reflect the disclosure 
to the Secretary of any reimbursements made to employees of an 
institution of higher education for service on advisory boards (see 
section 485(m) of the HEA); and
     Amending Sec. Sec.  674.51, 674.53, 674.56, 674.57, 
674.58, 674.59, and 674.61 to reflect the expansion of cancellation 
benefits for Perkins Loan borrowers, including cancellation benefits 
for teachers in an educational service agency; staff members in a pre-
kindergarten or childcare program; attorneys employed in a Federal 
Public Defender Organization or Community Defender Organization; fire 
fighters, faculty members of a Tribal College or University, librarians 
with a master's degree employed in an elementary or secondary school or 
in a public library that serves one or more schools eligible for 
funding under title I of the Elementary and Secondary Education Act of 
1965, as amended; and speech pathologists with a master's degree who 
work exclusively with title I-eligible schools (see section 465(a) of 
the HEA).
    In addition to these changes, we have made a number of minor 
technical corrections and conforming changes. Changes that are 
statutory or that involve only minor technical corrections are 
generally not discussed in the Analysis of Comments and Changes 
section.

Waiver of Proposed Rulemaking for Additional Conforming Changes

    These final regulations incorporate certain statutory changes made 
to the HEA by the HEOA that were not included on Team II's negotiating 
agenda. These changes are:
     Amending Sec. Sec.  674.12(a) and (b) to increase 
undergraduate and graduate student annual and aggregate loan maximums 
in the Perkins Loan Program.
     Amending Sec. Sec.  674.33(d) to eliminate the requirement 
that a borrower make a ``written'' request in order to obtain a 
forbearance on his or her Perkins Loan.
     Amending Sec. Sec.  674.39(a) and (b) to change the number 
of consecutive on-time, monthly payments a borrower must make to 
successfully rehabilitate a defaulted Perkins Loan from 12 to 9.
    Because these amendments implement changes to the HEA that were not 
negotiated, we do not discuss them in the Analysis of Comments and 
Changes section.
    Under the Administrative Procedure Act (5 U.S.C. 553), the 
Department is generally required to publish a notice of proposed 
rulemaking and provide the public with an opportunity to comment on 
proposed regulations prior to issuing final regulations. In addition, 
all Department regulations for programs authorized under Title IV of 
the HEA are subject to the negotiated rulemaking requirements of 
section 492 of the HEA. However, both the APA and HEA provide for 
exemptions from these rulemaking requirements. The APA provides that an 
agency is not required to conduct notice-and-comment rulemaking when 
the agency for good cause finds that notice and comment are 
impracticable, unnecessary or contrary to the public interest. 
Similarly, section 492 of the HEA provides that the Secretary is not 
required to conduct negotiated rulemaking for Title IV, HEA program 
regulations if the Secretary determines that applying that requirement 
is impracticable, unnecessary or contrary to the public interest within 
the meaning of the HEA.
    Although the regulations implementing the HEOA are subject to the 
APA's notice-and-comment and the HEA's negotiated rulemaking 
requirements, the Secretary determined that it was unnecessary to 
conduct negotiated rulemaking or notice-and-comment rulemaking on the 
changes needed in Sec. Sec.  674.12, 674.33 and 674.39. These 
amendments simply modify the Department's regulations to reflect 
statutory changes made by the HEOA to paragraphs (a), (e), and (h) of 
section 464 of the HEA and these changes are already effective. The 
Secretary does not have discretion in whether or how to implement these 
changes. Accordingly, negotiated rulemaking and notice-and-comment 
rulemaking are unnecessary.

Implementation Date of These Regulations

    Section 482(c) of the HEA requires that regulations affecting 
programs under title IV of the HEA be published in final form by 
November 1 prior to the start of the award year (July 1) to which they 
apply. However, that section also permits the Secretary to designate 
any regulation as one that an entity subject to the regulation may 
choose to implement earlier and the conditions under which the entity 
may implement the provisions early.
    Consistent with the intent of this regulatory effort to strengthen 
and improve the administration of the title IV, HEA programs, the 
Secretary is using the authority granted him under section 482(c) of 
the HEA to designate the following new and amended provisions for early 
implementation, at the discretion of each institution, lender, guaranty 
agency, or servicer, as appropriate: Sec. Sec.  601.11(a), (b), and 
(c), 601.12, 601.21, 601.40(a), 668.16(d)(2), 668.42(a)(4), 674.12(a) 
and (b), 674.33(d), 674.39(a)(2), 674.42(b), 674.53, 674.57, 674.58, 
674.59, 682.604, and 685.304.

Analysis of Comments and Changes

    Except as noted earlier in this document regarding the limited 
regulations implementing provisions of the HEOA, the regulations in 
this document were developed through the use of negotiated rulemaking. 
Section 492 of the HEA requires that, before publishing any proposed 
regulations to implement programs under title IV of the HEA, the 
Secretary must obtain public involvement in the development of the 
proposed regulations. After obtaining advice and recommendations, the 
Secretary must conduct a negotiated rulemaking process to develop the 
proposed regulations. All proposed regulations must conform to 
agreements resulting from the negotiated rulemaking process unless the 
Secretary reopens that process or explains any departure from the 
agreements to the negotiated rulemaking participants.
    These regulations were published in proposed form on July 28, 2009, 
in conformance with the consensus of the negotiated rulemaking 
committee. Under the committee's protocols, consensus meant that no 
member of the

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committee dissented from the agreed-upon language. The Secretary 
invited comments on the proposed regulations by August 27, 2009. More 
than 25 parties submitted comments, a number of which were 
substantially similar. An analysis of the comments and the changes in 
the regulations since publication of the NPRM follows.
    We group major issues according to subject, with appropriate 
sections of the regulations referenced in parentheses. We discuss other 
substantive issues under the sections of the regulations to which they 
pertain. Generally, we do not address minor, non-substantive changes, 
recommended changes that the law does not authorize the Secretary to 
make, or comments pertaining to operational processes. We also do not 
address comments pertaining to issues that were not within the scope of 
the NPRM.

PART 601--INSTITUTION AND LENDER REQUIREMENTS RELATING TO EDUCATION 
LOANS

Subpart A--General

Definitions (Sec.  601.2)
    Comment: Several commenters recommended that we modify the 
definition of the term preferred lender arrangement in proposed Sec.  
601.2(b), based on final regulations published in the Federal Register 
by the Federal Reserve Board on August 14, 2009 (74 FR 41194). The 
Official Staff Interpretations included with the Federal Reserve's 
final regulations state that a lender is only required to comply with 
the preferred lender arrangement disclosure requirements in 12 CFR 
226.48(f) if the lender is aware that it is a party to a preferred 
lender arrangement (74 FR 41236). In the commenters' view, this 
acknowledgement by the Federal Reserve Board that a lender may be in a 
preferred lender arrangement without realizing it means that a 
preferred lender arrangement does not exist unless both parties are 
aware of the arrangement. These commenters recommended that we revise 
our proposed definition of preferred lender arrangement to specify that 
a preferred lender arrangement can only arise when both the lender and 
the school are aware of the arrangement. These commenters argued that 
this change in the definition would align our regulations with the 
Official Staff Interpretations included with the Federal Reserve's 
final regulations.
    Discussion: We disagree that there is a conflict between our 
definition of preferred lender arrangement and the statement in the 
Official Staff Interpretations included with the Federal Reserve's 
final regulations that a lender is only required to comply with the 
preferred lender arrangement disclosure requirements in 12 CFR 
226.48(f) if the lender is aware that it is a party to a preferred 
lender arrangement.
    The issue of whether a preferred lender arrangement exists if a 
lender is not aware that it is a party to the arrangement came up 
frequently during the negotiated rulemaking process. As we stated 
during negotiated rulemaking and in the preamble to the NPRM, a 
preferred lender arrangement exists if a lender provides or issues 
education loans to students (or the families of students) attending a 
covered institution and the covered institution or an institution-
affiliated organization recommends, promotes, or endorses the education 
loan products of the lender. If both of these conditions are met, a 
preferred lender arrangement exists, whether or not the covered 
institution and the lender have entered into a formal agreement.
    We agree with the Federal Reserve Board that it is possible for a 
lender to make loans to students at a covered institution and not be 
aware that the covered institution recommends, promotes, or endorses 
the education loan products of the lender. We do not view the Federal 
Reserve Board's position to be, however, that a preferred lender 
arrangement does not exist if the lender is not aware of the preferred 
lender arrangement. The Federal Reserve Board acknowledges that the 
arrangement exists, but states that the lender is not required to 
comply with the preferred lender arrangement disclosure requirements in 
12 CFR 226.48(f) unless the lender is aware that it is a party to a 
preferred lender arrangement.
    Changes: None.
    Comment: Paragraph (3) of the definition of preferred lender 
arrangement specifies that a preferred lender arrangement does not 
exist with regard to private education loans made by a covered 
institution to its own students, if the private education loans meet 
the requirements in paragraphs (3)(i), (3)(ii), (3)(iii) and (3)(iv) of 
the preferred lender arrangement definition in proposed Sec.  601.2(b). 
One commenter recommended that private education loans made by a 
foundation created to support a covered institution also should be 
exempted, if the loans meet the other criteria stipulated in the 
definition. The commenter defined ``foundations'' to include non-profit 
endowments, foundations, or other entities that are created to support 
a covered institution and its students. The commenter stated that these 
foundations are not lenders or lending institutions in the traditional 
sense, but they often make loans to students at covered institutions, 
funded by donor-directed contributions and other assets of the 
foundation.
    This commenter also recommended that we amend paragraph (3)(iii) of 
the definition of preferred lender arrangement in proposed Sec.  
601.2(b) to exempt loans made through State aid programs available to 
in-state students. The commenter noted that such State aid loan 
programs may have a service requirement, resulting in no monetary 
payback if the borrower meets the service obligations.
    Discussion: We agree with the comment relating to foundations, and 
note that the lead-in language to the definition of the term preferred 
lender arrangement in proposed Sec.  601.2(b) refers to both covered 
institutions and institution-affiliated organizations. We believe that 
the exceptions specified in paragraph (3) of the preferred lender 
arrangement definition apply to private education loans provided or 
issued by institution-affiliated organizations, as well as private 
education loans provided or issued by covered institutions. The 
definition of the term institution-affiliated organization includes 
foundations and other entities of the type the commenter included under 
its definition of the term ``foundations''.
    We also agree with the recommendation to include loans made to 
students from State-funded financial aid programs among the exceptions 
for Public Health Service Loans in paragraph (3)(iii) of the preferred 
lender arrangement definition in Sec.  601.2(b), if the terms and 
conditions of the loans include a loan forgiveness option for public 
service. However, we have not limited this exemption to State-funded 
financial aid programs for in-state students, as the commenter 
suggested. We believe that these types of State-funded loans should be 
exempt from the preferred lender arrangement definition regardless of 
whether the loans are limited to in-state students.
    Changes: We have revised paragraphs (3) and (3)(i) of the 
definition of the term preferred lender arrangement in Sec.  601.2(b) 
to reference institution-affiliated organizations (not only covered 
institutions). We also have revised paragraph (3)(iv) of the definition 
to refer to State-funded financial aid programs.
    Comment: One commenter requested clarification of the provision in 
the definition of preferred lender

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arrangement that states that an arrangement or agreement does not exist 
if the private education loan provided or issued to a student attending 
a covered institution is made by the covered institution using its own 
funds. The commenter referred to language in the preamble of the NPRM 
stating that an institution would not be considered to be using its own 
funds if it borrowed money from a lender to make a private education 
loan to a student and then sold the loan to that lender shortly after 
making the loan, in effect acting as a pass-through for the lender's 
funds. While sharing the Department's concern that an institution may 
become a pass-through for a lender if the institution sells a private 
education loan back to the lender from which the institution received 
the initial funding, the commenter also worried that limitations placed 
on selling private education loans made by a covered institution would 
prevent schools from raising capital to make additional institutional 
loans. The commenter asked if an institution would be permitted to sell 
a private education loan to a different or unaffiliated lender that was 
not the source of the funds used to make the loan and still be 
considered to be using its own funds.
    Discussion: The Department remains concerned about situations where 
a covered institution obtains funds from a lender to make private 
education loans to its students and then sells the loans back to that 
lender, or another unaffiliated lender, shortly after making the loan. 
As stated in the preamble to the NPRM, we believe that the covered 
institution is merely acting as a pass-through for the lender's funds 
in these situations. Exempting loans made under these conditions from 
the preferred lender arrangement requirements would create a loophole 
that covered institutions could use to avoid the preferred lender 
requirements. The Department also continues to believe that these 
arrangements may be deceptive to borrowers who believe they are 
receiving a private education loan from the covered institution only to 
find that, very shortly after the loan is made, the actual loan holder 
is another entity entirely.
    The Department recognizes, however, that borrowing money or using a 
business line of credit from a lender is a common form of financing 
that enables a covered institution to meet its working capital needs 
and operating expenses. Rather than focus on the use of a line of 
credit or borrowed funds in defining an institution's own funds, the 
Department believes that it is more helpful to consider the totality of 
the circumstances around the extension of private education loans by a 
covered institution and what happens to these loans over a period of 
time. In that vein, the Department will consider a covered institution 
that makes a private education loan to be using its own funds if the 
loan is made using funds that include, but are not necessarily limited 
to, tuition and fee revenue, investment income, endowment funds, 
borrowed money or a line of credit, and the covered institution does 
not sell or collateralize the private education loan for two years from 
the date the loan is fully disbursed, nor does the covered institution 
engage in an arrangement tying the sale of a private education loan to 
a lender after the two year period has elapsed.
    Changes: None.
    Comment: The definition of private education loan in proposed Sec.  
601.2(b) corresponds to the definition of private education loan in 
section 140 of the Truth in Lending Act (TILA) (15 U.S.C. 1631). The 
definition of private education loan in 12 CFR 226.46(b)(5) of the 
Federal Reserve's final regulations is also based on the definition in 
section 140 of the TILA. However, through regulations, the Federal 
Reserve has interpreted the statutory term private education loan to 
include certain exemptions. Under 12 CFR 226.46(b)(5), an extension of 
credit provided by a covered educational institution is not a private 
education loan if the extension of credit is for a term of 90 days or 
less, or if the term of the extension of credit is one year or less and 
an interest rate will not be applied to the credit balance.
    Several commenters recommended that we revise the definition of 
private education loan in Sec.  601.2(b) by including these exemptions. 
One commenter noted that applying the private education loan 
disclosures to such short-term extensions of credit would not provide 
meaningful disclosures to students. Requiring such disclosure for 
short-term extensions of credit could lead schools to stop providing 
such extensions of credit, making it more difficult for students to 
benefit from the flexible payment options offered by these extensions 
of credit.
    Discussion: We agree with the commenters. We also note that the 
Federal Reserve Board's interpretation of the definition of private 
education loan, as reflected in 12 CFR 226.46(b)(5), renders the 
proposed exception for loans made under an institutional payment plan 
in paragraph (3)(iv) of the definition of preferred lender arrangement 
in proposed Sec.  601.2(b) superfluous.
    Changes: We have revised the definition of private education loan 
in Sec.  601.2(b) to exclude extensions of credit that meet the 
criteria specified by the Federal Reserve Board in 12 CFR 226.46(b)(5). 
We also have removed the reference to institutional payment plans in 
subparagraph (3)(iv) of the definition of preferred lender arrangement.

Subpart B--Loan Information To Be Disclosed by Covered Institutions and 
Institution-Affiliated Organizations

Preferred Lender Arrangement Disclosures (Sec.  601.10)
    Comment: One commenter recommended that we modify proposed Sec.  
601.10(a)(1)(i), which requires a covered institution in a preferred 
lender arrangement to disclose the maximum amount of title IV grant and 
loan aid available to students in the informational materials that 
discuss education loans that the covered institution makes available. 
The commenter recommended that instead of referring to title IV grant 
aid that the regulations specify Pell Grant aid. The commenter also 
recommended that the regulations include a statement that the title IV 
information only address title IV aid available to students attending 
the school. The commenter stated that it would be misleading to 
students to mandate disclosure of information about all title IV grant 
and loan programs, since not all schools participate in all of the 
title IV grant and loan programs.
    Discussion: The information required to be disclosed to students by 
covered institutions and institution-affiliated organizations is 
specified in section 152(a)(1)(i)(I) of the HEA. This section 
specifically refers to grant and loan aid under title IV of the HEA, 
not just Pell Grant aid. Limiting the information provided to Pell 
Grant aid would not be consistent with the HEA.
    We agree with the commenter that the information provided in these 
materials should be specific to the covered institution. However, we do 
not agree that a change to Sec.  601.10(a)(1)(i) is necessary. In our 
view, Sec.  601.10(a)(1)(i), taken in context with the other regulatory 
provisions in Sec.  601.10, clearly refers to title IV information 
specific to the covered institution.
    The information specified in Sec.  601.10(a)(1)(i) must be included 
in information materials that are provided to current or prospective 
students of the covered institution and must describe or discuss 
financial aid opportunities available to students (see Sec.  
601.10(b)). This information must be provided in a manner that allows a 
student to take the information into account before

[[Page 55630]]

selecting a lender or applying for an education loan (see Sec.  
601.10(c)(2)).
    The information provided under this section is intended to help 
students make informed decisions when applying for student financial 
aid. Providing a student with information on title IV financial aid 
programs not available at the covered institution could be misleading 
to the student. In addition, for prospective students who have not made 
a final decision on which school to attend, we believe it would be more 
helpful for the student to be able to easily compare the title IV 
financial aid opportunities available at the different schools the 
student is considering.
    Changes: None.
    Comment: The preamble to the NPRM makes a reference to Dear 
Colleague Letter GEN-08-06 (DCL GEN-08-06), which discusses the use of 
preferred lender lists in the FFEL Program. DCL GEN-08-06, which is 
available at  https://www.ifap.ed.gov/dpcletters/GEN0806.html, states 
that a neutral, comprehensive list of lenders that have made loans to 
students at a school within a set period of time, such as three to five 
years, and that provides a clear statement that a borrower can choose 
to use any FFEL lender, is not considered a preferred lender list. DCL 
GEN-08-06 also states that the school may not provide any additional 
information about the lender on the list.
    Commenters asked whether the guidance in DCL GEN-08-06 applies to a 
list of lenders who have made private education loans at a covered 
institution, as well as to a list of FFEL lenders.
    Discussion: The guidance in DCL GEN-08-06 applies to a list of 
lenders who have made private education loans at a covered institution, 
as well as a list of FFEL lenders. During the negotiated rulemaking 
sessions, we stated that the list of lenders could also include a 
comparison of terms and conditions offered by the lenders on the loans 
being offered.
    As noted in the NPRM, if a covered institution includes certain 
lenders on the list and leaves other lenders off the list, the 
Department views the covered institution as recommending, promoting, or 
endorsing the lenders on the list over the lenders that it has chosen 
to leave off the list regardless of whether the covered institution 
includes a disclaimer on the list, asserting that the covered 
institution does not recommend, promote, or endorse the lenders on its 
list. Unless the list is a neutral, comprehensive list of lenders who 
lent to students at the school, the list serves to recommend, promote, 
or endorse the lenders on the list, despite whatever disclaimers the 
school may attach to the list.
    Changes: None.
    Comment: One commenter noted that many institutions are no longer 
providing students and their families with a preferred lender list for 
private education loans. Instead, many institutions are referring 
borrowers to Web sites developed by third party entities that contain 
neutral lists of private education lenders and the loan products they 
offer. The commenter requested that the Department clarify its position 
on the use of these private education lender lists by institutions of 
higher education in helping students and their families explore their 
higher education financing options.
    Discussion: The Department does not consider an institution that 
refers its students to a third party entity that maintains a 
comprehensive, neutral listing of private education lenders to be 
participating in a preferred lender arrangement as long as the 
institution ensures that the listing is broad in scope, does not 
endorse or recommend any of the lenders on the list and the lenders on 
the list do not pay the third party entity to be placed on the list or 
pay the third party entity a fee based on any loan volume generated. 
However, if an institution retains a third party entity to develop a 
customized lender list for the institution to provide to its students 
as a resource, either through a Request for Information or some other 
process, the Department does consider the institution to be 
participating in, and subject to the requirements of, a preferred 
lender arrangement under part 601.
    Changes: None.
    Comment: One commenter asked us to clarify whether a covered 
institution could be required to comply with the preferred lender 
arrangement disclosures if the covered institution does not have a 
preferred lender list. The commenter wanted to know if there are 
instances in which an institution would be considered to be 
recommending, promoting, or endorsing an education loan product in the 
absence of a preferred lender list. The commenter expressed concern 
that a covered institution might not realize that it is in a preferred 
lender arrangement, and therefore fail to comply with the preferred 
lender arrangement requirements.
    Discussion: Any action that a covered institution takes to 
recommend, promote, or endorse the education loan products of a lender 
that provides or issues education loans to students attending the 
covered institution triggers the preferred lender arrangement 
requirements. The actions a covered institution may take to recommend, 
promote, or endorse the education loan products of a lender are not 
limited to including the lender on a preferred lender list.
    If a covered institution is unsure whether it is in a preferred 
lender arrangement with a lender, the covered institution should review 
its policies and practices with regard to that lender. We do not 
believe that a covered institution would have difficulty determining 
whether or not the covered institution is recommending, promoting, or 
endorsing a lender's loan products, or whether or not the covered 
institution is complying with DCL GEN-08-06.
    Moreover, the program participation agreement requirements in Sec.  
668.14(b)(28) require an institution that participates in a preferred 
lender arrangement to annually publish a list of lenders with which it 
has preferred lender arrangements. To comply with this requirement, an 
institution must routinely determine whether it is in a preferred 
lender arrangement with any lender that provides education loans to the 
institution's students.
    Changes: None.
Private Education Loan Disclosures and Self-Certification Form (Sec.  
601.11)
    Comment: Several commenters stated that the requirement for a self-
certification form should be confined to direct-to-consumer private 
education loans and that the self-certification form should not be 
required if an institution is already certifying the borrower's cost of 
attendance, estimated financial assistance, enrollment status and 
academic progress directly to the private education lender. These 
commenters stated that requiring an institution to provide an enrolled 
or admitted student applicant of a private education loan with the 
self-certification form and the information necessary to complete the 
form, in addition to the school certification to the private education 
lender, would delay the delivery of loan funds to students and 
families, result in conflicting information if the borrower changed the 
information on the form, and create a duplicative and unnecessary 
administrative burden on institutions.
    Another commenter asked the Department to provide relief from the 
self-certification form requirements when:
     The borrower is an international student (non-citizen) and 
not eligible for title IV aid;
     The borrower has been determined not eligible for title IV 
aid; or

[[Page 55631]]

     The borrower has already received all of the title IV 
funds for which she is eligible.
    This commenter further suggested that the Department exempt an 
institution of higher education that makes private education loans to 
its students from the requirement that it provide an applicant for the 
institutional loan with the self-certification form or, alternatively, 
to allow the institution to provide clarification to the prospective 
borrower on his or her eligibility for title IV aid.
    Discussion: The Department understands that requiring an 
institution to provide the private self-certification form, and making 
available the information needed to complete the form, represents an 
increase in burden and may, in some cases, create duplicative 
processes. However, the statutory language in section 128(e)(3) of the 
TILA and sections 155 and 487(a)(28)(A) of the HEA is clear: The TILA 
requires private education lenders to obtain the self-certification 
form from all borrowers of private education loans, as that term is 
defined in the TILA, without exception. The HEA requires the form, and 
the information required to complete it, to be made available to the 
applicant by the relevant institution of higher education, in written 
or electronic form, upon request of the applicant, without exceptions, 
and conditions an institution's participation in any title IV, HEA 
program, on compliance with this requirement.
    The Department, in negotiating rules implementing this provision in 
Sec. Sec.  601.11(d) and 668.14(b)(29)(i), clarified that the 
institution must provide the form only to an enrolled or admitted 
student. We believe this clarification will help minimize the potential 
burden of this requirement.
    Moreover, the Federal Reserve Board, in implementing section 
128(e)(3) of the TILA provided some flexibility to private education 
lenders in obtaining the form that has an impact on an institution's 
responsibilities. The Federal Reserve Board, in 12 CFR 226.48, provides 
three ways for a private education lender to obtain the self-
certification form: (1) The lender may receive the form directly from 
the consumer; (2) the lender may receive the form from the consumer 
through the institution of higher education; or (3) the lender may 
provide the form, and the information the consumer will require to 
complete the form, directly to the consumer.
    While all three of these options require the institution to provide 
the form, and the information required to complete the form, to either 
the private loan applicant or the private education lender, the 
Department believes that options 2 and 3 may be less burdensome on the 
institution, especially if the institution has an existing relationship 
with the lender.
    Although the Federal Reserve has built some flexibility into the 
process of obtaining the self-certification form for the lender, the 
Department emphasizes that an institution is not required to provide 
the form, or the information needed to complete the form, to anyone 
other than the borrower in order to comply with Sec. Sec.  601.11(d) 
and 668.14(b)(29)(i). An institution may provide the form to the lender 
at its option.
    Changes: None.

Subpart C--Responsibilities of Covered Institutions and Institution-
Affiliated Organizations

Code of Conduct (Sec.  601.21)
    Comment: The code of conduct provisions in Sec.  601.21(c)(2)(i) 
prohibit employees of the financial aid office of a covered institution 
from soliciting or accepting gifts from a lender, guarantor, or loan 
servicer. However, as specified in Sec.  601.21(c)(2)(iii)(D), entrance 
and exit counseling services provided to borrowers do not qualify as a 
gift, as long as the covered institution's staff are in control of the 
counseling and the counseling does not promote the products or services 
of a specific lender. One commenter recommended that the Department 
clarify the meaning of ``in control'' with respect to the counseling, 
and in a manner that minimizes the potential for conflicts of interest, 
particularly with regard to opportunities for lenders to build 
awareness of their brand through the counseling. This commenter also 
recommended that we modify Sec.  601.21(c)(2)(iii)(D) to explicitly 
prohibit lender-provided personnel from providing the counseling, 
except in emergency situations as specified in Sec.  
601.21(c)(6)(iii)(D).
    Discussion: The code of conduct requirements in Sec.  601.21 track 
very closely the code of conduct requirements in section 487(e)(1) 
through 487(e)(7) of the HEA. The statutory provisions and 
corresponding provision in Sec.  601.21(c)(6)(iii)(D) specifically 
allow a lender to provide entrance and exit counseling ``services to 
borrowers.'' We believe that it would be inconsistent with the statute 
to prohibit lender-provided personnel from providing these services. 
However, as the commenter points out, the covered institution's staff 
must be in control of the counseling.
    To remain in control of the counseling, the covered institution has 
to review and approve the content of the counseling and provide 
oversight over how the counseling is conducted. Ultimately, the covered 
institution is responsible for the entrance and exit counseling that 
its borrowers receive. We believe this oversight by the covered 
institution will mitigate against lenders using the counseling to 
promote their products.
    Changes: None.
    Comment: One commenter believed that proposed Sec.  601.21(c)(5)(i) 
goes beyond Congressional intent and may reduce the availability of 
private education loans to certain students. This section prohibits a 
covered institution from accepting any offer from a lender for funds to 
be used for private education loans, if the offer is made in exchange 
for the covered institution's providing concessions or promises to 
provide the lender a specified number of loans, a specified loan 
volume, or a preferred lender arrangement for FFEL loans or private 
education loans. The commenter noted that section 487(e)(5)(A)(i) of 
the HEA limits this provision to FFEL Loans. The commenter recommended 
that we remove the reference to private education loans from Sec.  
601.21(c)(5)(i)(A).
    Discussion: The code of conduct requirements specified in section 
487(e) of the HEA are from the section of the HEA that describes 
program participation agreements for institutions that participate in 
the title IV programs. Section 487(a)(25)(A)(ii) of the HEA specifies 
that the code of conduct shall, ``at a minimum,'' include the 
provisions described in section 487(e) of the HEA. Section 153(c)(3)(A) 
of the HEA requires covered institutions and institution-affiliated 
organizations that participate in preferred lender arrangements to 
comply with the code of conduct requirements in section 487(a)(25) of 
the HEA. Because covered institutions do not necessarily participate in 
the title IV programs, and preferred lender arrangements may relate to 
private non-title IV education loans as well as title IV education 
loans, we continue to believe that it is necessary to include private 
education loans in Sec.  601.21(c)(5)(i)(A).
    Changes: None.
    Comment: The code of conduct provisions prohibit a covered 
institution from requesting or accepting any assistance with call 
center staffing or financial aid office staffing from a lender. 
However, Sec.  601.21(c)(6)(ii) specifies that a covered institution 
may request or accept educational

[[Page 55632]]

counseling materials, financial literacy materials, or debt management 
materials from a lender, provided that the materials identify any 
lender that assisted in preparing or providing the materials. One 
commenter believed that the requirement to identify the lender on the 
materials could result in direct or indirect promotional opportunities 
for the lender. The commenter recommended that we prescribe the text 
and format of the language that identifies the lender on the materials. 
The commenter also recommended that we require the language identifying 
the lender to clearly state that the borrower is not expected or 
required to use the lender's products and has the right to obtain loans 
from a lender of the borrower's choice.
    Discussion: We believe that it would be overly prescriptive for the 
Department to mandate the specific language and formatting used to 
identify the lender or lenders who developed the materials.
    Changes: None.
    Comment: While the code of conduct provisions generally prohibit a 
covered institution from requesting or accepting staffing assistance 
from a lender, Sec.  601.21(c)(6)(iii) provides an exception for 
staffing assistance provided on a short-term, non-recurring basis to 
assist the covered institution with financial aid-related functions 
during emergencies.
    One commenter stated that this provision conflicts with the 
prohibited inducement provisions in the Team I NPRM, published in the 
Federal Register on July 23, 2009 (74 FR 36556). Specifically, the 
commenter stated that Sec.  682.200(b)(5)(i)(A)(10) prohibits lenders 
from offering to perform any function required under title IV for a 
school, other than exit counseling.
    Discussion: Section 682.200(b)(5)(i)(A)(10) does not prohibit a 
lender from providing these services to a school in all circumstances. 
The prohibition only applies if a lender provides the services ``to 
secure applications for FFEL loans or to secure FFEL loan volume'' (see 
Sec.  682.200(b)(5)(i)(A)). The Department assumes the necessary intent 
if we take action against a lender for providing such prohibited 
inducements, but the lender may demonstrate to the Department that such 
intent was not present, and there was no quid pro quo between the 
school and the lender. As long as there is no evidence that the lender 
was providing the services to increase the number or volume of loans, 
there would not be a prohibited inducement. Therefore, the provisions 
in Sec.  682.200(b)(5)(i)(A)(10) and Sec.  601.21(c)(6)(iii) do not 
conflict.
    Changes: None.

Subpart E--Lender Responsibilities

Disclosure and Reporting Requirements for Lenders (Sec.  601.21)
    Comment: One commenter noted that Sec.  601.40(c) requires FFEL 
lenders to annually certify to the Secretary their compliance with the 
HEA if they are in a preferred lender arrangement with any school. The 
commenter noted that a lender could be in a preferred lender 
arrangement without being aware of it, and suggested that the 
requirement in Sec.  601.40(c) only apply to lenders that know they are 
in a preferred lender arrangement.
    Discussion: If a lender is providing or issuing education loans to 
students attending a covered institution, it is incumbent on the lender 
to determine whether or not the lender and the covered institution are 
in a preferred lender arrangement. Being unaware of its obligation to 
comply with the preferred lender arrangement requirements does not 
exempt a lender from its obligation to comply with the requirements.
    Given the extensive reporting and disclosure requirements specified 
in part 601, we believe that it is extremely unlikely that a lender 
will be unaware when it is in a preferred lender arrangement with a 
covered institution.
    Specifically, covered institutions are required to provide detailed 
information on private education loans offered pursuant to a preferred 
lender arrangement, as well as information on why the covered 
institution participates in a preferred lender arrangement with the 
lenders on its preferred lender list. The preferred lender list must 
disclose the method and criteria used by the covered institution to 
select lenders for inclusion on the list. Covered institutions are 
likely to contact lenders to determine if the lender meets the 
selection criteria established by the covered institution.
    If the covered institution has not directly contacted the lender to 
obtain the information needed for its various disclosures and reports, 
a lender can quickly and easily determine whether it is in a preferred 
lender arrangement by accessing the covered institution's Web site. A 
covered institution that participates in a preferred lender arrangement 
must post on its Web site information on private education loans 
offered through the preferred lender arrangement, pursuant to Sec.  
601.10(a)(2)(i). The covered institution must also submit an annual 
report to the Department, which includes a detailed explanation of why 
the covered institution participates in the preferred lender 
arrangement. The covered institution must make the annual report 
available to the public, pursuant to Sec.  601.20(b).
    If a lender reviews all of this information and still cannot 
determine whether or not it is in a preferred lender arrangement with a 
covered institution, the lender can always contact the covered 
institution directly.
    Enforcement actions taken by the Department against a lender for 
failing to comply with the preferred lender arrangement requirements 
will take into account the extent of the efforts made by the lender to 
determine whether it was in a preferred lender arrangement.
    Changes: None.
    Comment: Proposed Sec.  601.40(d) requires lenders in a preferred 
lender arrangement to annually provide to the institution or 
institution-affiliated organization, and to the Secretary, information 
regarding the FFEL loans the lender will provide to students and 
families pursuant to the preferred lender arrangement for the next 
award year. One commenter recommended that a FFEL lender with a 
preferred lender arrangement with a covered institution or an 
institution-affiliated organization relating to FFEL loans must 
annually, or upon the request of the institution, provide such 
information as required.
    Discussion: Proposed Sec.  601.40(d) is consistent with the 
statutory requirements in section 153(b) of the HEA. Because the 
commenter provided no explanation or justification for the requested 
change, we have no basis for making the requested change.
    Changes: None.
Code of Conduct (Sec.  668.14(b)(27))
    Comment: One commenter requested that the Department clarify the 
applicability of the code of conduct requirements. The commenter asked 
under what circumstances Sec.  601.21(a) applies and under what 
circumstances Sec.  668.14(b)(27) applies.
    Discussion: The HEOA added requirements for an institutional code 
of conduct in both section 153(c)(3) and section 487(a)(25) of the HEA. 
These changes are reflected in Sec. Sec.  601.21(a) and 668.14(b)(27), 
respectively. The code of conduct requirements in Sec.  601.21(a) apply 
to covered institutions and institution-affiliated organizations that 
have a preferred lender arrangement. A covered institution is any 
institution that receives Federal funding, including institutions that 
do not participate in the Title IV programs. The regulations in Sec.  
668.14(b)(27) require all institutions

[[Page 55633]]

to develop a code of conduct as a condition of program participation in 
any of the Title IV, HEA loan program.
    Changes: None.
Private Education Loan Certification (Sec.  668.14(b)(29))
    Comment: Several commenters noted that Congress enacted technical 
amendments to the HEA that changed the data that must be included on 
the private loan self-certification form. The commenters requested that 
corresponding changes be made to Sec.  668.14(b)(29).
    Discussion: The Higher Education Technical Corrections (Pub. L. 
111-39) made technical amendments to the HEA that changed the 
information on the private loan self-certification form that an 
institution must provide to any enrolled student who requests it. 
Public Law 111-39 added a requirement to report amounts of estimated 
financial assistance used to replace the expected family contribution 
and removed the requirement to report the expected family contribution.
    Changes: We revised Sec.  668.14(b)(29) to reflect the changes made 
by Public Law 111-39 to the information to be reported to students on 
the private loan self-certification form.
Disclosures of Reimbursement for Service on Advisory Boards (Sec.  
668.16(d)(2))
    Comment: One commenter urged the Department to amend Sec.  
668.16(d)(2) by expanding the requirement to report to the Secretary 
any reasonable expenses paid or provided under section 140(d) of the 
TILA to all institutional officials with authority or influence on the 
selection of lenders.
    Discussion: The HEOA amended section 485(m) of the HEA by adding, 
as a condition of participation in any title IV, HEA program, the 
requirement that the institution must annually report to the Secretary 
on any reasonable reimbursements paid or provided by a private 
education lender or group of lenders to any individual who is employed 
in the financial aid office of the institution or who otherwise has 
responsibilities with respect to education loans or other financial aid 
of the institution. The institution must report the amount of 
reasonable expenses paid or reimbursed, the name of the individual to 
whom the expenses were paid or provided, the dates of the activity for 
which the expenses were paid or provided, and must provide a brief 
description of the activity for which the expenses were paid or 
provided. While we believe that individuals who assist in or influence 
the selection of lenders would be included in the language as proposed, 
we agree that the recommended change is appropriate to highlight the 
HEOA's goal of transparency and accountability.
    Changes: We have amended Sec.  668.16(d)(2) to specifically 
reference, as an example of individuals who have responsibilities with 
respect to education loans, individuals with responsibilities for the 
selection of lenders.
Cohort Default Rates
    Comment: A few commenters asked the Department to clarify the 
circumstances under which an institution's published cohort default 
rate would be recalculated as a result of an average rates appeal.
    Discussion: Regarding the provision for publicly correcting rates 
as a result of average rate appeals, we note that average rate appeals 
under Sec. Sec.  668.196(a)(1)(i) and 668.215(a)(1)(i) do not involve 
new rates, so the provision for correction is inapplicable. Average 
rate appeals under Sec. Sec.  668.196(a)(1)(ii) and 668.215(a)(1)(ii) 
do not involve new rates either, but instead are a comparison of the 
average rate with the draft rate, as corrected by any timely 
adjustment, challenge or appeal. The regulations continue to provide 
that draft rates will be kept confidential. As a result, in the case of 
an average rates appeal, there is no corrected rate available for the 
Department to publish.
    Changes: We have removed from Sec. Sec.  668.196(c) and 668.215(c) 
the language stating that we will electronically correct the rate that 
is publicly released following a successful average rates appeal.
    Comment: None.
    Discussion: As part of our intradepartmental review of the cohort 
default rate regulations affected by the NPRM, we realized that 
proposed Sec.  668.202(c) and current Sec.  668.183(c), which identify 
the conditions and timeframes relating to when a borrower is considered 
to be in default on a loan, do not explicitly address uninsured loans 
held by the Department under the Ensuring Continued Access to Student 
Loans Act of 2008 (ECASLA)(Pub. L. 110-227). As explained more fully in 
a notice published in the Federal Register on July 1, 2008 (73 FR 
37422), under the ECASLA, the Secretary has authority to purchase, or 
enter into forward commitments to purchase, FFELP loans. Loans that the 
Department holds under this authority are not insured. The Department 
is responsible for servicing these uninsured FFELP loans.
    The Department's CDR regulations need to identify when these 
uninsured FFELP loans that the Department holds are considered in 
default for CDR purposes. The date of default for CDR purposes for 
other FFELP loans is defined under Sec.  668.183(c)(1)(i) and new Sec.  
668.202(c)(1)(i) as the date a claim for insurance is paid. Because the 
uninsured FFELP loans are indistinguishable from Direct Loan Program 
loans for CDR purposes, we have revised Sec. Sec.  668.183(c) and 
668.202(c) to follow the approach used in Sec.  668.183(c)(1)(ii), 
concerning the date of default of Direct Loan Program loans, for 
defining the date of default of uninsured FFELP loans held by the 
Department.
    Changes: We have revised Sec. Sec.  668.183(c) and 668.202(c) to 
clarify that FFELP loans held by the Department under ECASLA are 
treated in the same way as Direct Loans with respect to determining 
when a borrower defaults.
Special Definitions (Sec.  674.51(b))
    Comment: One commenter asked if there is a list of institutions 
that may be used as a reference when determining a borrower's 
eligibility for cancellation based on service as a full-time faculty 
member of a Tribal College or University, as that term is defined in 
section 316 of the HEA.
    Discussion: The HEOA amended section 465(a)(2) of the HEA by adding 
a new public service cancellation category for borrowers in the Federal 
Perkins Loan program who are performing qualifying service as a full-
time faculty member at a Tribal College or University, as that term is 
defined in section 316 of the HEA. We amended Sec.  674.51(b) to 
reflect this change.
    The Department provides a list of Tribal Colleges and Universities 
on its Web site at https://www.ed.gov/about/inits/list/whtc/edlite-tclist.html#MN. This list can be used as a resource when establishing a 
borrower's eligibility for cancellation under this provision.
    Changes: None.
Teacher Cancellation (Sec.  674.53(e))
    Comment: One commenter noted that proposed Sec.  674.53(e) stated 
that a borrower is eligible for cancellation of a Perkins loan if she 
is a teacher in a designated public or other non-profit low-income 
elementary or secondary school or an educational service agency and the 
borrower is directly employed by the school system. The commenter 
further noted that, in the case of a borrower who is teaching in an 
educational service agency, the borrower may be working for many

[[Page 55634]]

school districts. The commenter asked the Department to clarify if a 
borrower in this situation would qualify for cancellation benefits 
under this provision.
    Discussion: The HEOA amended section 465(a)(2)(A) of the HEA to 
expand cancellation benefits to a Perkins Loan borrower who is a 
teacher employed by an educational service agency, or who is a full-
time special education teacher, including a teacher of infants, 
toddlers, children, or youth with disabilities, who is working in a 
system administered by an educational service agency. We amended Sec.  
674.53(a) to reflect this statutory change.
    With regard to a borrower who is employed by an educational service 
agency, we consider the borrower to be employed by the school system 
and to qualify for cancellation benefits regardless of the number of 
school districts in which the borrower works. A more detailed 
discussion of educational service agencies is contained in the 
Department's final regulations implementing the lender and guaranty 
agency provisions (RIN 1840-AC98) [Docket ID ED-2009-OPE--0004].
    Changes: None.
Cancellation for Law Enforcement or Corrections Officer Service (Sec.  
674.57)
    Comment: One commenter asked the Department to clarify how to 
determine if Community Defender Organizations and Federal Public 
Defender Organizations are established in accordance with section 
3006A(g)(2)(B) and 3006A(g)(2)(A) of the Criminal Justice Act, 
respectively, when establishing a borrower's eligibility for 
cancellation based on her service as a full-time attorney employed in a 
defender organization.
    Discussion: The HEOA amended section 465(a)(2)(F) of the HEA to 
extend cancellation benefits to borrowers who are employed full-time as 
an attorney in Federal Public Defender Organizations or Community 
Defender Organizations established in accordance with section 
3006A(g)(2) of the Criminal Justice Act. We amended Sec.  674.57 of the 
Perkins Loan Program regulations to reflect this change.
    Pursuant to the Criminal Justice Act, the Office of Defender 
Services of the Administrative Office of the U.S. Courts provides 
information on its Web site that lists these Community Defender and 
Federal Public Defender Organizations. The Directory can be found at 
the following address: https://www.fd.org/pdf_lib/defenderdir8_17_09.pdf.
    This Directory is updated daily. Although this is not a Web site 
that is administered by the Department of Education, the directory 
provided on this site may assist in determining a borrower's 
eligibility for cancellation under this provision. Additional guidance 
on this cancellation benefit will be provided in the Department's 
Federal Student Aid Handbook.
    Changes: None.
Cancellation for Military Service (Sec.  674.59)
    Comment: One commenter asked the Department to clarify the 
percentage rate of cancellation for a borrower in her third year of 
qualifying military service under the newly authorized military service 
cancellation rates if the borrower had previously received two years of 
cancellation at the previously authorized cancellation rate of 12\1/2\ 
percent.
    Discussion: The HEOA amended section 465(a)(3)(A) of the HEA to 
allow borrowers who are serving in areas of hostility to receive a 
cancellation of up to 100 percent of the loan for each full year of 
qualifying active duty service effective on August 14, 2008, in the 
following increments: 15 percent for the first and second years of 
service; 20 percent for the third and fourth years of service; and 30 
percent for the fifth year of service. Previously, the percentage of a 
loan canceled for qualifying military service could not exceed a total 
of 50 percent of the loan at a rate of 12\1/2\ percent per year. We 
amended Sec.  674.59 to reflect these changes.
    To clarify, a borrower who has received a military service 
cancellation for two years under the previously authorized cancellation 
rate of 12.5 percent, and who now qualifies for a third year of 
military service under the new cancellation rates, would qualify at the 
third-year 20 percent cancellation rate for the third year of eligible 
military service.
    Changes: None.
Entran