FR Doc E9-25190[Federal Register: October 29, 2009 (Volume 74, Number 208)]
[Rules and Regulations]               
[Page 55971-56006]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29oc09-25]                               

Download: download files

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Part III





Department of Education





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34 CFR Parts 673, 674, 682, et al.



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


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DEPARTMENT OF EDUCATION

34 CFR Parts 673, 674, 682, and 685

RIN 1840-AC98
[Docket ID ED-2009-OPE-0004]

 
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 amends the Federal Perkins Loan (Perkins Loan) 
Program, Federal Family Education Loan (FFEL) Program, and William D. 
Ford Federal Direct Loan (Direct Loan) Program regulations to implement 
provisions of the Higher Education Act of 1965 (HEA), as amended by the 
Higher Education Opportunity Act of 2008 (HEOA), and other recently 
enacted legislation.

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 Higher Education Act of 1965, as 
amended (HEA)(20 U.S.C. 1089(c)(2)(A)), that lenders, guaranty 
agencies, and loan servicers that administer the FFEL and Direct Loan 
programs may, at their discretion, choose to implement the new 
provisions in Sec. Sec.  682.211(f) and 685.205(b) governing 
administrative forbearances for PLUS loans on or after November 1, 
2009. 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 total and 
permanent disability loan discharges, Jon Utz or Pamela Moran. 
Telephone: (202) 377-4040 or (202) 502-7732 or via the Internet at: 
jon.utz@ed.gov or pamela.moran@ed.gov. For information related to FFEL 
and Direct Loan teacher loan forgiveness, Donald Conner or Jon Utz. 
Telephone: (202) 502-7818 or (202) 377-4040 or via the Internet at: 
donald.conner@ed.gov or jon.utz@ed.gov. For information related to all 
other provisions included in these final regulations, Pamela Moran. 
Telephone: (202) 502-7732 or via the Internet at: pamela.moran@ed.gov.
    If you use a telecommunications device for the deaf (TDD), 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 in this section.

SUPPLEMENTARY INFORMATION: On July 23, 2009, the Secretary published a 
notice of proposed rulemaking (NPRM) for the Perkins Loan, FFEL, and 
Direct Loan Programs in the Federal Register (74 FR 36556).
    In the preamble to the NPRM, the Secretary discussed on pages 36558 
through 36575 the major regulations proposed in that document to 
implement provisions of the HEOA, including the following:
     Amending Sec. Sec.  674.51(aa) and 682.200(b) by revising 
the definition of ``totally and permanently disabled'' for title IV 
loan discharges to incorporate statutory changes made by the HEOA, 
including a separate total and permanent disability standard for 
certain veterans, and adding a definition of ``substantial gainful 
activity'' in Sec. Sec.  674.51(x) and 685.200(b) to explain the 
meaning of that term as used in the revised definition of totally and 
permanently disabled. The changes to Sec.  674.51(aa) and Sec.  
674.51(x) appear in final regulations published in the Federal Register 
on October 28, 2009 (RIN 1840-AC95).
     Amending Sec. Sec.  674.61(b), 682.402(c)(2) through (7), 
and 685.213(b) by revising the process for discharging a borrower's 
title IV loans due to total and permanent disability to reflect the 
revised definition of totally and permanently disabled, including the 
establishment of a separate discharge process for certain veterans.
     Amending Sec. Sec.  674.9(g), 682.201(a), and 685.200(a) 
by making conforming changes to the borrower eligibility regulations 
needed to effectively implement the new total and permanent disability 
loan discharge process in Sec. Sec.  674.61(b), 682.402(c)(2) through 
(7), and 685.213(b).
     Amending Sec. Sec.  682.201(e) and 685.220(d) to provide 
that a borrower with only FFEL Program loans may consolidate those 
loans into the Direct Loan Program to use the no accrual of interest 
benefit for active duty military service members.
     Amending Sec.  682.206(f) to require FFEL Program lenders 
to inform borrowers that by applying for a Consolidation loan, the 
borrower is not obligated to agree to take the loan, and to provide 
borrowers with a 10-day period to cancel the Consolidation loan.
     Amending Sec. Sec.  682.210 and 685.204 to provide that: 
(1) A parent PLUS borrower may receive a deferment on a PLUS loan first 
disbursed on or after July 1, 2008 while the dependent student for whom 
the loan was obtained is enrolled on at least a half-time basis at an 
eligible institution, and during the 6-month period after the student 
ceases to be enrolled at least half time; and (2) a graduate or 
professional student PLUS borrower may receive a deferment on a PLUS 
loan first disbursed on or after July 1, 2008 during the 6-month period 
after the student ceases to be enrolled on at least a half-time basis 
at an eligible institution.
     Amending Sec.  682.202(b) to provide that a lender may 
capitalize PLUS loan interest that has accrued from the date of the 
first disbursement until the date the repayment period begins, and 
making a corresponding change in Sec.  685.202(b) to provide that the 
Secretary may capitalize interest on a PLUS loan when the loan enters 
repayment.
     Amending Sec. Sec.  682.211(f) and 685.205(b) to provide 
that a FFEL lender or the Secretary (for a Direct Loan) may grant an 
administrative forbearance on a borrower's PLUS loans that were first 
disbursed before July 1, 2008 to align the repayment begin date of 
those loans with the borrower's PLUS loans first disbursed on or after 
July 1, 2008 that are eligible for the new PLUS loan deferments in 
Sec. Sec.  682.210 and 685.204.
     Amending Sec. Sec.  682.202 and 685.202 to provide that 
any FFEL or Direct Loan program loans of a military servicemember that 
were incurred before the servicemember entered military service are 
subject to the provision in section 207 of the Servicemembers Civil 
Relief Act (50 U.S.C. 527) (SCRA) that limits the interest rate on a 
loan to six percent during periods of active duty service. In addition, 
Sec.  682.302 was amended to provide that for FFEL Program loans first 
disbursed on or after July 1, 2008 that are subject to the SCRA 
interest rate cap, a lender's special allowance payment is calculated 
as it otherwise would be under program requirements, except that the 
applicable interest rate is six percent.
     Amending Sec. Sec.  682.210(c)(1) and 
685.204(b)(1)(iii)(A) to provide that a FFEL lender or the Secretary 
(for a Direct Loan) may grant an in-school deferment based on 
confirmation of the borrower's enrollment status through the National 
Student Loan Data System (NSLDS), if requested by the borrower's 
school.
     Amending Sec.  682.210(a)(3) to require a lender to notify 
a borrower of an unsubsidized loan, at or before the time a deferment 
is granted, that he or she has the option to pay the interest that 
accrues on the loan during the

[[Page 55973]]

deferment or to cancel the deferment, and to provide the borrower with 
information on the impact of interest capitalization if accrued 
interest is not paid. A comparable change was made in Sec.  
685.204(b)(1)(ii)(B) to provide for the same information to be given to 
Direct Loan borrowers.
     Amending Sec. Sec.  682.215(a) and 685.221(a) by revising 
the definition of partial financial hardship for the purpose of 
determining a borrower's eligibility to repay under the income-based 
repayment (IBR) plan. The revised definition specifies that the annual 
amount due on a borrower's eligible loans (under a standard repayment 
plan with a 10-year repayment period) for purposes of determining 
whether a borrower has a partial financial hardship is calculated based 
on the greater of: (1) The amount owed on the eligible loans when the 
borrower initially entered repayment; or (2) the amount owed when the 
borrower selected the IBR plan.
     Amending Sec. Sec.  682.215(b)(1) and 685.221(b)(2) to 
provide that if a borrower who requests the IBR plan and the borrower's 
spouse both have eligible loans and file a joint Federal tax return, 
the calculated IBR partial financial hardship payment amount for each 
borrower would be adjusted based on each borrower's percentage of the 
couple's total eligible loan debt.
     Amending Sec. Sec.  682.216 and 685.217 to specify that an 
otherwise eligible borrower may qualify for teacher loan forgiveness 
based on teaching service performed as an employee of an eligible 
educational service agency. The proposed regulations also added HEOA 
prohibitions on receiving loan forgiveness under the FFEL or Direct 
Loan teacher loan forgiveness programs and certain other loan 
forgiveness programs for the same period of teaching service.
     Amending Sec. Sec.  682.405(a) and 685.211(f) to provide 
that a borrower may not rehabilitate a defaulted FFEL or Direct Loan 
program loan more than once. The proposed regulations also amended 
Sec.  682.405(b)(1)(iii) to clarify that both the guaranty agency and 
its agents must comply with the requirements in that section when 
determining what constitutes a ``reasonable and affordable'' payment 
amount for loan rehabilitation purposes.
     Amending Sec. Sec.  682.200(b) and 682.401(e) by 
incorporating new prohibited and permissible activities by lenders and 
guaranty agencies that were added to the HEA by the HEOA.
     Amending Sec.  682.205 by adding new disclosure 
requirements for FFEL Program lenders that were added by the HEOA, and 
by reorganizing the existing disclosure provisions to accommodate the 
new disclosure requirements and more clearly distinguish the various 
disclosures that are required at various points during the lifecycle of 
a loan.
     Amending Sec.  682.208(e) to specify additional 
information that must be provided to a borrower if the assignment or 
transfer of ownership interest on a FFEL Program loan results in a 
change in the identity of the party to whom the borrower must send 
subsequent payments.
     Amending Sec.  682.211(e) to require a lender, at the time 
a borrower is granted a forbearance, to provide the borrower with 
information on the impact of interest capitalization, and to contact 
the borrower at least once every 180 days during any period of 
forbearance and provide additional information on the impact of 
forbearance on the borrower's loan.
     Amending Sec.  682.305(c) to require that a FFEL school 
lender or an eligible lender trustee (ELT) originating loans on behalf 
of a school submit an annual compliance audit to the Secretary, 
regardless of the dollar volume of loans originated. The proposed 
regulations also specify the requirements that the annual audit must 
meet.
     Adding a new Sec.  682.401(g) to implement a statutory 
requirement for a guaranty agency to work with the schools that it 
serves to develop and make available to students and their families 
high-quality educational materials that provide training in budgeting 
and financial management.
     Amending Sec.  682.405 to require a guaranty agency to 
make available financial and economic education materials, including 
debt management information, to any borrower who has rehabilitated a 
defaulted loan.
     Amending Sec.  682.405(b) to require the prior holder of a 
previously defaulted loan that has been rehabilitated, in addition to 
the guaranty agency, to request that any consumer reporting agency to 
which the default was reported remove the default from the borrower's 
credit history. The proposed regulations also provided more detailed 
reporting deadlines for the guaranty agency and prior loan holder to 
request that the default be removed from the borrower's credit history, 
and reduced the period for these actions to be completed.
     Amending Sec.  682.410(b) by expanding the information 
that a guaranty agency must provide to a borrower who is in default, 
and by adding a requirement that the guaranty agency provide this same 
information to a defaulted borrower in a second notice that the 
guaranty agency must send as part of its collection efforts.
     Amending Sec.  682.200(b) by removing the definition of 
``National credit bureau'' and replacing it with a definition of 
``Nationwide consumer reporting agency''. The proposed regulations also 
replaced all references to ``credit bureau'' in Sec.  682.410(b)(5) and 
(b)(6) with ``consumer reporting agency''.
    There are no significant differences between the NPRM and these 
final regulations resulting from public comments.
    In addition to the changes necessary to implement provisions of the 
HEOA, these final regulations also incorporate certain changes made to 
the HEA by Public Law 111-39, enacted on July 1, 2009, and by the 
Ensuring Continued Access to Student Loans Act of 2008 (Pub. L. 110-
227) (ECASLA), enacted on May 7, 2008. These changes are:
     Amending the definition of ``estimated financial 
assistance'' (EFA) in Sec. Sec.  673.5(c), 682.200(b), and 685.102(b). 
The HEOA amended section 480(j)(1) of the HEA to exclude Federal 
veterans' education benefits, as defined in section 480(c) of the HEA, 
from the definition of EFA for the Title IV student assistance 
programs. Public Law 111-39 made technical corrections to the HEA that, 
among other things, updated the list of Federal veterans' education 
benefits that are excluded from EFA and excluded the new Iraq and 
Afghanistan Service Grants from the definition of EFA. We have made 
technical changes to the definition of EFA in Sec. Sec.  673.5(c), 
682.200(b), and 685.102(b) to reflect these recent changes to the HEA. 
We have also made a few technical changes to clarify and standardize 
the current EFA definitions.
     Amending the lists of prohibited activities in Sec. Sec.  
682.200 and 682.401 to reflect a change made by Public Law 111-39 that 
allows FFEL Program lenders and guaranty agencies to provide in-person 
entrance counseling as well as exit counseling to borrowers.
     Amending Sec. Sec.  682.216 and 685.217 to reflect a 
technical correction made by Public Law 111-39 to the provisions that 
prohibit a borrower from receiving, for the same teaching service, loan 
forgiveness under the FFEL or Direct Loan teacher loan forgiveness 
programs and certain other loan forgiveness programs.
     Amending Sec. Sec.  682.204 and 685.203 to reflect the 
changes to the annual and aggregate loan limits for unsubsidized 
Stafford Loans in both the FFEL and Direct Loan programs that were made 
by ECASLA.

[[Page 55974]]

    In addition to the changes related to Public Law 111-39 and ECASLA 
that are discussed above, these final regulations make 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 and Negotiated Rulemaking Regulations 
Implementing the HEOA

    Under the Administrative Procedure Act (APA) (5 U.S.C. 553), the 
Department is generally required to publish an NPRM 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, 
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 APA.
    Although the regulations implementing the changes made by Public 
Law 111-39 and ECASLA are subject to the APA's notice-and-comment and 
the HEA's negotiated rulemaking requirements, the Secretary has 
determined that it is unnecessary to conduct negotiated rulemaking or 
notice-and-comment rulemaking on the limited regulatory changes. These 
changes simply reflect statutory changes made by Public Law 111-39 and 
ECASLA that are already effective. The Secretary does not have 
discretion as to whether or how to implement these changes.

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 new provisions in Sec. Sec.  682.211(f) and 
685.205(b) governing administrative forbearances for PLUS loans for 
early implementation at the discretion of each lender, guaranty agency, 
or servicer, as appropriate.

Analysis of Comments and Changes

    Except as noted above in regard to the limited regulations 
implementing provisions of Public Law 111-39 and ECASLA, 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 23, 2009, 
in conformance with the consensus of the negotiated rulemaking 
committee. Under the committee's protocols, consensus meant that no 
member of the committee dissented from the agreed-upon language. The 
Secretary invited comments on the proposed regulations by August 24. 
Eighteen parties submitted comments, many of which were substantially 
similar. The commenters generally supported the proposed regulations. 
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.

Total and Permanent Disability Loan Discharges (Sec. Sec.  674.61(b) 
and (c), 682.402(c), and 685.213)

    Comment: One commenter noted that there are a significant number of 
United States citizens who live abroad and suggested that the 
regulations be revised to allow a disabled borrower living overseas to 
submit an application for a total and permanent disability discharge 
certified by a physician who is licensed to practice in the foreign 
country where the borrower resides.
    Discussion: The proposed regulations retained the current 
regulatory requirement that the physician who certifies a total and 
permanent disability discharge application must be a doctor of medicine 
or osteopathy who is legally authorized to practice in a State. The 
term ``State'' is defined in section 103(23) of the HEA to include the 
States of the United States, the District of Columbia, Puerto Rico, 
Guam, Samoa, the U.S. Virgin Islands, the Northern Mariana Islands and 
the Freely Associated States (the Marshall Islands, Micronesia and 
Palau). The total and permanent disability discharge application 
requires the certifying physician to identify the State in which he or 
she is licensed to practice, and to provide his or her professional 
license number.
    In June 1999, the Department of Education's Inspector General (IG) 
issued a report that identified a number of weaknesses in the 
procedures for determining eligibility for total and permanent 
disability loan discharge and concluded that inappropriate discharges 
were being granted as a result of those weaknesses. In the years since 
the IG's report, the Department has revised the total and permanent 
disability discharge regulations and taken other measures to strengthen 
the procedures for determining a borrower's eligibility for discharge, 
including verification through State records of a physician's license 
to practice. This verification is conducted for each total and 
permanent disability discharge application that the Department reviews. 
Licensure requirements for physicians in foreign countries may differ 
significantly from the requirements in the United States, or in some 
countries may not exist. It would not be possible for the Department to 
verify a physician's license to practice in a foreign country, even if 
a country requires its physicians to be licensed. The Department also 
follows up with physicians who certified an application but did not 
provide sufficient information concerning the borrower's medical 
condition. Having to contact and

[[Page 55975]]

communicate with physicians in foreign countries would be difficult in 
many cases.
    For these reasons, the Department believes that it is important to 
retain the requirement that a physician who certifies a total and 
permanent disability discharge application must be licensed to practice 
in a State.
    Changes: None.
    Comment: One commenter believed that the preamble to the NPRM 
indicated that the Department's standard for determining disability is 
essentially the same as the standard used in the Social Security 
Disability Insurance (SSDI) program, and suggested that the process of 
determining a borrower's eligibility for total and permanent disability 
discharge could be made more efficient if the Department provided an 
electronic means for a borrower to report that he or she is receiving 
SSDI benefits.
    Discussion: The commenter's understanding of the preamble 
discussion in the NPRM is incorrect. In the preamble to the NPRM, the 
Department explained that the proposed definition of substantial 
gainful activity--not the definition of totally and permanently 
disabled--is based, in part, on the definition of substantial gainful 
activity that is used by the Social Security Administration (SSA) to 
determine whether an individual is eligible for Social Security 
disability benefits. The NPRM included the definition of totally and 
permanently disabled that was added to the HEA by the HEOA. This new 
statutory standard does not correspond to any of the disability 
standards used by the SSA for determining an individual's eligibility 
for Social Security disability benefits. An individual who receives SSA 
disability benefits may not qualify as totally and permanently disabled 
under the definition of that term in the HEA.
    Changes: None.
    Comment: Two commenters recommended that the Department revise the 
total and permanent disability discharge regulations to use the poverty 
guideline amount for a borrower's actual family size to determine 
whether the borrower's annual employment earnings during the post-
discharge monitoring period demonstrated that the borrower was not 
totally and permanently disabled. One of the commenters stated that 
borrowers with larger families should be allowed to earn more income 
during the post-discharge monitoring period. This commenter suggested 
that any concerns about potential borrower confusion over the use of a 
variable standard based on actual family size could be resolved by 
annually posting an updated poverty guideline chart on a Department Web 
site.
    Discussion: During the negotiated rulemaking sessions, the 
Department initially proposed an annual earnings standard based on the 
poverty guideline amount for the borrower's actual family size because 
we believed that it would be more equitable for borrowers with a family 
size greater than two. The Department's original proposal would have 
been a change from the employment earnings standard under the current 
total and permanent disability discharge regulations, which provide 
that a conditionally discharged loan will be removed from conditional 
discharge status if a borrower has annual 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. However, during the negotiated rulemaking sessions, some of the 
non-Federal negotiators, including the student and legal aid 
representatives, felt strongly that it would be better to continue to 
use the poverty guideline amount for a family of two. These negotiators 
noted that a borrower's family size could change during the three-year 
post-discharge monitoring period, and in such cases the borrower would 
have to monitor changes in the employment earnings limit. They believed 
that a changing standard would be confusing and could result in a 
borrower inadvertently exceeding the employment earnings limit. These 
negotiators urged the Department to retain the current fixed standard 
based on a family size of two. The Department agreed that retaining a 
fixed employment earnings limit based on the poverty guideline amount 
for a family of two during the entire post-discharge monitoring period 
would be less confusing for borrowers and simpler to administer.
    Changes: None.
    Comment: Several commenters noted that under the proposed 
regulations in Sec.  682.402(c)(8) governing total and permanent 
disability discharges for certain veterans, if the Department 
determines that a veteran is eligible for a loan discharge, the 
guaranty agency is responsible for notifying the veteran that the 
veteran has no obligation to make further payments on the loan. These 
commenters recommended that the regulations be revised to provide that 
the lender, rather than the guaranty agency, would notify the veteran 
of his or her eligibility for discharge. The commenters believed that 
it would be simpler to require the lender to make this notification, 
since the proposed regulations already require the lender to refund any 
payments received on the loan after the date of the Department of 
Veterans Affairs disability determination, and the lender would 
therefore already be communicating with the borrower for this purpose. 
The commenters further noted that this approach would be more 
consistent with the proposed regulations governing the general process 
for total and permanent disability discharges for other borrowers. 
Under those regulations, the lender notifies a borrower that his or her 
loan has been assigned to the Department for a determination of 
discharge eligibility, and that no further payments are required.
    Discussion: The Department agrees with the commenters.
    Changes: Section 682.402(c)(8)(ii)(F) has been revised to specify 
that upon receipt of the claim payment from the guaranty agency (after 
the Department has notified the guaranty agency that a veteran is 
eligible for a discharge), the lender notifies the veteran that the 
veteran's obligation to make any further payments on the loan has been 
discharged.
    Comment: Several commenters recommended that the changes to the 
total and permanent disability discharge definition and process should 
be made effective for discharge applications received on or after July 
1, 2010. The commenters believed that using the application receipt 
date as the effective date for the changes would benefit borrowers who 
may not qualify for discharge based on the current definition of 
totally and permanently disabled, and would provide a clearly defined 
transition point for processing discharge applications under the new 
regulations.
    Discussion: Under these final regulations, the new definition of 
totally and permanently disabled and the new discharge process are 
effective for discharge applications received on or after July 1, 2010. 
Disability discharge applications from borrowers other than qualified 
veterans that are received prior to July 1, 2010 will be processed 
under the current regulations and borrower eligibility will be 
determined based on the current definition of totally and permanently 
disabled. Veterans who provide documentation that they have been 
determined by the Secretary of Veterans Affairs to be unemployable due 
to a service-connected disability will have their discharge 
applications processed under the separate procedures that the 
Department has already implemented for these

[[Page 55976]]

borrowers in accordance with the requirements of the HEOA.
    Changes: None.
    Comment: One commenter expressed concerns that many disabled 
military borrowers are unaware that they may qualify for total and 
permanent disability discharge of their loans because of widespread 
problems with a lack of information about this benefit from both FFEL 
Program lenders and the Department. The commenter recommended a number 
of operational measures that lenders, the Department, the Department of 
Defense, and the Department of Veterans Affairs should take to help 
ensure that disabled military borrowers are made aware of the total and 
permanent disability loan discharge provision. The commenter also 
recommended that loan amounts discharged due to total and permanent 
disability should not be treated as taxable income, since this presents 
a financial hardship for disabled borrowers with low incomes.
    Discussion: The Department provides information about total and 
permanent disability discharges on the master promissory notes that are 
signed by all borrowers in all three title IV loan programs. Further, 
information about total and permanent disability discharges is also 
available on Department Web sites, such as Student Aid on the Web 
(http://www.studentaid.ed.gov) and the Direct Loan Program Web site 
(http://www.ed.gov/DirectLoan), as well as Web sites maintained by many 
FFEL Program lenders. Moreover, customer service representatives for 
the Department have been given information about the disability 
discharge process and can provide this information to borrowers. These 
efforts do not have to be addressed in the Department's regulations. 
The commenter's proposal regarding the tax treatment of discharged loan 
amounts would require a statutory change in the Internal Revenue Code 
and cannot be addressed through these regulations.
    Changes: None.
    Comment: One commenter requested clarification of the provisions in 
Sec. Sec.  674.9(g), 682.201(a), and 685.200(a) that require a borrower 
who requests a new title IV loan after receiving a total and permanent 
disability discharge on a prior loan to: (1) Provide a physician's 
certification that he or she is able to engage in substantial gainful 
activity; and (2) acknowledge that the new loan may not be discharged 
in the future based on any medical condition present at the time the 
new loan is made, unless that condition substantially deteriorates. 
Specifically, the commenter asked if these requirements apply to all 
borrowers who received a prior total and permanent disability 
discharge, regardless of whether the discharge was granted under the 
general discharge procedures or the special procedures for certain 
veterans.
    Discussion: The requirements for receiving a new loan after having 
a loan discharged due to total and permanent disability apply to all 
borrowers, regardless of whether the discharge was granted under the 
general discharge process or the special discharge process for certain 
veterans. These requirements are intended to assure that the borrower 
is likely to repay the loan in accordance with the promissory note that 
the borrower signs for the new loan.
    Changes: None.
    Comment: One commenter recommended that current Sec.  
682.201(a)(6), which specifies the additional eligibility requirements 
that must be met by a borrower who requests a new loan following a 
final discharge of a prior title IV loan due to a total and permanent 
disability, also be applied to a borrower who is requesting a new loan 
after receiving a final discharge of a TEACH Grant service obligation 
due to a total and permanent disability. The commenter believed that an 
individual who wants to receive a new loan after previously receiving a 
final total and permanent disability discharge should have to meet the 
same eligibility requirements, regardless of whether the prior 
disability discharge involved a title IV loan or a TEACH Grant service 
obligation.
    The commenter also asked if the Department's National Student Loan 
Data System (NSLDS) will indicate that a TEACH Grant service obligation 
has been discharged due to a total and permanent disability, just as it 
currently identifies title IV loans that have been discharged due to a 
total and permanent disability.
    Discussion: The Department agrees that a borrower who requests a 
new title IV loan after previously receiving a final total and 
permanent disability discharge of a TEACH Grant service obligation 
should be subject to the same eligibility requirements as a borrower 
who previously received a final total and permanent disability 
discharge of a title IV loan. NSLDS does identify TEACH Grant service 
obligations that have been discharged based on the grant recipient's 
total and permanent disability.
    Changes: Section 682.201(a)(6) has been revised by adding a 
reference to TEACH Grant service obligations. Corresponding changes 
have also been made in Sec. Sec.  674.9(g) and 685.200(a)(1)(iv).
    Comment: One commenter raised concerns about the requirement in 
current Sec.  682.402(h)(1)(i)(B) as it relates to the proposed 
regulations in Sec.  682.402(c)(8) that govern the total and permanent 
disability discharge process for certain veterans. Under current Sec.  
682.402(h)(1)(i)(B), a guaranty agency must promptly review a 
disability discharge claim filed by a lender and pay an approved claim 
within 90 days after the claim was filed. The commenter believed that 
this deadline is reasonable in the case of a disability claim processed 
under the standard discharge process in proposed Sec.  682.402(c)(1) 
through (7), since all of the actions that are required to pay a 
lender's claim are entirely under the guaranty agency's control. 
However, the commenter noted that under the separate discharge process 
for certain veterans in proposed Sec.  682.402(c)(8), a guaranty agency 
cannot pay a lender's disability claim until the Department has 
reviewed the veteran's discharge request and notified the guaranty 
agency that the veteran is eligible for discharge. Therefore, a delay 
in the Department's review of a veteran's discharge request could 
prevent a guaranty agency from meeting the 90-day time limit in current 
Sec.  682.402(h)(1)(i)(B). The commenter recommended that the 
Department amend current Sec.  682.402(h)(1)(i)(B) to provide one 
deadline for a guaranty agency to review a disability claim involving a 
veteran's discharge request and either refer the discharge application 
and any supporting documentation to the Department or return it to the 
lender, and a separate deadline for the guaranty agency to either pay 
or return the claim, as applicable, after being notified by the 
Department that the veteran is or is not eligible for discharge.
    Discussion: The Department agrees with the commenter.
    Changes: Section 682.402(h)(1) has been revised to provide that a 
guaranty agency must review a disability claim based on a veteran's 
discharge request under Sec.  682.402(c)(8) and either submit the 
request to the Department or return the claim to the lender within 45 
days after the claim was filed, and must pay the claim or return the 
claim to the lender within 45 days after being notified by the 
Department of the veteran's eligibility or ineligibility for discharge.

Consolidation Loans (Sec.  682.201(e))

    Comment: One commenter asked that the regulations clarify which 
FFEL Program loans are eligible for the Direct

[[Page 55977]]

Loan Program's no accrual of interest benefit for active duty military 
service members after a FFEL borrower consolidates the loans into the 
Direct Loan Program. The commenter believed the language in the 
proposed regulations did not adequately address this issue and 
suggested that the regulations be amended to include the clarifying 
language contained in the Department's Stafford Loan Master Promissory 
Note (MPN).
    Discussion: The Department agrees with the commenter that the 
regulatory language defining which loans are eligible for the no 
accrual of interest benefit should be clarified and that it is 
appropriate to use the Stafford Loan MPN language as a model. The 
Stafford Loan MPN informs borrowers that a FFEL Program loan that was 
first disbursed on or after October 1, 2008, including a Federal 
Consolidation Loan that repaid FFEL or Direct Loan program loans first 
disbursed on or after October 1, 2008, may be consolidated into the 
Direct Loan Program to take advantage of the no accrual of interest 
benefit for active duty military service members, and explains that no 
interest will be charged on the portion of the new Direct Consolidation 
Loan that repaid FFEL or Direct Loan program loans first disbursed on 
or after October 1, 2008 during periods of qualifying active duty 
military service (for up to 60 months). A Federal Consolidation Loan 
that repaid some loans that were first disbursed on or after October 1, 
2008 and other loans that were first disbursed before that date may be 
consolidated into the Direct Loan Program to take advantage of the no 
accrual of interest benefit, but the benefit will apply only to the 
portion of the Direct Consolidation Loan that is attributable to the 
loans repaid by the Federal Consolidation Loan that were first 
disbursed on or after October 1, 2008.
    Changes: Section 682.201(e)(5) has been revised to include language 
specifying that FFEL Program loans first disbursed on or after October 
1, 2008 (including Consolidation loans that repaid FFEL or Direct loans 
first disbursed on or after October 1, 2008) are eligible for the no 
accrual of interest benefit when included in a Federal Direct 
Consolidation Loan.

In-School Deferments for PLUS Loans (Sec.  682.210)

    Comment: One commenter raised an issue concerning proposed Sec.  
682.210(v)(1)(ii), which provides that if a lender grants an in-school 
deferment on a student PLUS loan first disbursed on or after July 1, 
2008 based on enrollment information that confirms the borrower's 
eligibility for the deferment, the deferment period includes the 
additional 6-month post-enrollment deferment period that begins when 
the student ceases to be enrolled on at least a half-time basis. The 
commenter believed that the regulations should not specify the 
operational method by which a lender processes a deferment, and 
recommended that the regulatory language be revised to provide that a 
lender may process the 6-month post-enrollment deferment as either an 
extension of the in-school deferment period, or a separate deferment 
period that begins when the student ceases to be enrolled at least half 
time.
    Discussion: The regulatory language stating that the deferment 
period ``includes'' the 6-month post-enrollment deferment is intended 
to clarify that if a lender grants an in-school deferment on a student 
PLUS loan first disbursed on or after July 1, 2008 based on enrollment 
status information, the 6-month post enrollment deferment may be 
granted without a separate request from the borrower. The regulatory 
language does not dictate the operational details of how a lender 
processes the post-enrollment deferment.
    Changes: None.

Deferment (Sec. Sec.  682.210 and 682.204)

    Comment: One commenter raised an issue concerning the discussion of 
proposed Sec.  682.210(a)(3)(ii) in the preamble to the NPRM. This 
provision requires a FFEL Program lender, at or before the time a 
deferment is granted to a borrower who is responsible for paying the 
interest on a loan during the deferment, to notify the borrower of 
certain information, including the borrower's option to pay the 
interest that accrues during the deferment or to cancel the deferment 
and continue paying on the loan. The Department stated in the preamble 
that a comparable change would be made to Sec.  
685.204(b)(1)(iii)(B)(2) to provide that Direct Loan borrowers will be 
notified of their right to cancel a deferment and continue paying on 
the loan. The commenter noted, however, that the corresponding Direct 
Loan provision does not specifically say that borrowers will be 
notified of the option to pay the accruing interest during a deferment 
period, and recommended that this be added to ensure that Direct Loan 
borrowers receive the same information as FFEL borrowers.
    Discussion: Regulations are issued to govern the activities of 
third parties; in general, the Secretary does not issue regulations to 
control the Department's activities. Direct Loan Program borrowers are 
notified of their option to pay the interest that accrues during a 
deferment on the Direct Loan Program deferment request forms and in the 
correspondence borrowers receive when a deferment is granted.
    Changes: None.
    Comment: Several commenters raised a concern about language in the 
preamble to the NPRM that describes the requirement for a lender to 
inform a borrower, at or before the time a deferment is granted, that 
the borrower has the option to pay the accruing interest or cancel the 
deferment and continue to pay on the loan. The commenters noted that, 
during the negotiated rulemaking process, the Department agreed that it 
would be helpful for a borrower to receive this information at the time 
of application for the deferment, and that including the required 
information in the Department-approved, standardized deferment forms 
would satisfy the notification requirement. The commenters were 
concerned that the discussion in the preamble could be misinterpreted 
to suggest that a lender must provide the information both at the time 
the borrower requests the deferment and at the time the lender grants 
the deferment.
    Discussion: The Department did not intend to imply a change in the 
meaning of the language in the regulations through the preamble 
discussion. As stated in Sec.  682.210(a)(3)(ii), the lender may 
provide the required information ``at or prior to the time the 
deferment is granted.'' Providing the required information to the 
borrower as part of the standardized deferment application at the time 
the borrower requests the deferment satisfies the regulatory 
notification requirement. The lender may, but is not required to, also 
provide the information at the time the deferment is granted.
    Changes: None.

Income-Based Repayment (IBR) Plan

    Comment: Some commenters praised the Department for proposing 
changes to the IBR regulations to address the calculation of partial 
financial hardship for borrowers whose outstanding loan balances 
increase rather than decrease while they repay their loans under 
another repayment plan prior to requesting IBR, and for married 
borrowers who file joint tax returns with the IRS and who both have 
eligible education loans. One commenter noted, however, that the 
Department had amended the Direct Loan regulations to allow a borrower 
who wants to repay a defaulted FFELP loan with a Direct

[[Page 55978]]

Consolidation Loan to agree to pay the Direct Consolidation Loan under 
the IBR Plan, but did not make a comparable change in Sec.  
682.201(d)(1)(i)(A). The commenter requested that a technical 
correction be made to insert a reference to IBR in the corresponding 
FFEL provision so that comparable terms and conditions apply to 
borrowers in both programs.
    Discussion: The commenter is correct that this change should be 
reflected in the FFEL Program regulations. The Department agrees that 
comparable terms and conditions should apply for this purpose for 
borrowers in both the FFEL and Direct Loan programs.
    Changes: Section 682.201(d)(1)(i)(A) has been revised to provide 
that a borrower may consolidate a defaulted loan if he or she agrees to 
repay the FFEL Consolidation loan under either the income-sensitive 
repayment plan or the income-based repayment plan.

FFEL and Direct Loan Program Teacher Loan Forgiveness (Sec. Sec.  
682.216 and 685.217)

    Comment: One commenter noted that under the proposed regulations, 
an educational service agency is considered an eligible educational 
service agency for teacher loan forgiveness purposes only if the agency 
meets the same eligibility requirements as elementary and secondary 
schools under current regulations, including the requirement to be 
listed in the Department's Annual Directory of Designated Low-Income 
Schools (Low-Income School Directory). The commenter asked for 
clarification as to whether an otherwise eligible teacher who is 
employed by an educational service agency that is not listed in the 
Low-Income School Directory would qualify for teacher loan forgiveness 
if the teacher taught for five complete, consecutive academic years at 
an elementary or secondary school that is included in the Low-Income 
School Directory.
    Discussion: The proposed regulations allow a teacher to qualify for 
loan forgiveness if he or she is employed as a full-time teacher for 
five consecutive complete academic years at an eligible elementary or 
secondary school or by an eligible educational service agency, and 
meets the other eligibility requirements of the teacher loan 
forgiveness program. An otherwise eligible teacher who is employed by 
an educational service agency, but who teaches at a low-income 
elementary or secondary school that is not operated by the educational 
service agency, may qualify for loan forgiveness if either the 
educational service agency or the school where the individual performs 
qualifying teaching service is listed in the Low-Income School 
Directory.
    Changes: None.
    Comment: One commenter asked for clarification as to who the 
appropriate certifying official would be for purposes of certifying the 
loan forgiveness application of a ``traveling'' teacher who, as 
discussed in the preamble to the NPRM, does not have a fixed location 
of employment, but instead performs qualifying teaching service at 
multiple eligible schools or eligible educational service agencies, and 
who may not actually be employed by the schools or educational service 
agencies where he or she teaches. The commenter believed that the 
reference in the NPRM to not having a fixed location of employment 
would imply that a traveling teacher is an independent contractor who 
is not actually employed by any school or educational service agency.
    Discussion: In the preamble to the NPRM, the Department indicated 
that ``traveling'' teachers who do not have a fixed location of 
employment, but who perform qualifying teaching service at multiple 
eligible elementary or secondary schools, or at multiple eligible 
educational service agencies, may (if otherwise eligible) qualify for 
teacher loan forgiveness even though they are not employees of the 
schools or educational service agencies where they teach. The reference 
to not having a fixed location of employment was not intended to 
suggest that a traveling teacher would be an independent contractor. A 
traveling teacher may be an employee of a particular school, school 
district, or educational service agency and provide teaching services 
at various schools or locations operated by educational service 
agencies. For purposes of certifying such a teacher's loan forgiveness 
application, the certifying official must be someone who has access to 
employment records that establish the teacher's eligibility for loan 
forgiveness, and who is authorized to verify the teacher's qualifying 
employment. The appropriate certifying official may vary depending on 
individual employment circumstances. The certifying official could be 
someone at the borrower's actual employer, or someone at the location 
where the borrower performed the qualifying teaching service.
    Changes: None.
    Comment: Several commenters stated that there appears to be a 
conflict between the preamble of the NPRM and the proposed regulatory 
language with regard to the conditions under which qualifying teaching 
service performed at an eligible educational service agency prior to 
the date of enactment of the HEOA may be counted toward the required 
five complete consecutive years of teaching service. The preamble 
states that the required five complete consecutive years may include 
any combination of teaching at eligible elementary or secondary schools 
or eligible educational service agencies, but that teaching at an 
educational service agency may be counted toward the five years only if 
the consecutive five years includes qualifying service at an eligible 
educational service agency performed after the 2007-2008 academic year. 
The proposed regulatory language in Sec. Sec.  682.216(a)(2) and 
685.217(a)(2) states that for teaching service performed by an employee 
of an eligible educational service agency, at least one of the five 
consecutive complete academic years must have been after the 2007-2008 
academic year.
    The commenters noted that the regulatory requirement for ``at least 
one'' of the complete academic years to have been after the 2007-2008 
academic year could be interpreted to mean that for any years of 
teaching at an eligible educational service agency prior to the 
enactment of the HEOA to count toward the required five consecutive 
years, a borrower must have completed a full year of teaching at an 
eligible educational service agency after the 2007-2008 academic year. 
They believed this approach would be contrary to the agreement reached 
during the negotiated rulemaking process and the preamble to the NPRM. 
The commenters interpreted the preamble language to mean that 
qualifying teaching service performed by an employee of an educational 
service agency prior to the enactment of the HEOA would count toward 
the required five consecutive years as long as the five-year period 
includes any period of qualifying teaching at an eligible educational 
service agency after the 2007-2008 academic year, even if the 
qualifying service at an educational service agency after the 2007-2008 
academic year is less than a full academic year. For example, the 
preamble language would allow a borrower who performed qualifying 
teaching service at an eligible educational service agency for four 
complete consecutive academic years from 2004-2005 through 2007-2008 to 
count those years toward the required five consecutive years if, during 
the 2008-2009 academic year, the borrower taught for half of the year 
at an eligible educational service agency and the other half of the 
year at an eligible elementary or secondary school. The

[[Page 55979]]

commenters recommended that proposed Sec.  682.216(a)(2) be revised to 
reflect the language in the preamble.
    Discussion: Proposed Sec.  682.216(a)(2) was intended to be 
consistent with the preamble to the NPRM regarding the eligibility of 
teaching service performed by an employee of an educational service 
agency prior to the date of enactment of the HEOA. However, the 
Department agrees with the commenters that the regulatory language 
could be misinterpreted.
    Changes: Sections 682.216(a)(2) and 685.217(a)(2) have been revised 
to reflect the language in the preamble to the NPRM. Conforming changes 
have also been made in Sec. Sec.  682.216(c)(3)(iii) and (c)(4)(iii), 
and 685.217(c)(3)(iii) and (c)(4)(iii).

Eligibility for Rehabilitation of Defaulted FFEL and Direct Loans 
(Sec. Sec.  682.405(a) and (b)(1)(iii) and 685.211(f))

    Comment: One commenter agreed with the Department's interpretation 
that the limit on rehabilitation of defaulted loans to one opportunity 
applies to each loan, but requested further clarification on the 
application of the limit. The commenter asked whether a borrower who 
successfully rehabilitates a defaulted loan, consolidates that loan, 
and then subsequently defaults on the consolidation loan would be 
eligible to rehabilitate the consolidation loan. The commenter believed 
the borrower should be eligible to rehabilitate the consolidation loan 
because the previously rehabilitated loan was in good standing when it 
was consolidated.
    Discussion: A consolidation loan is a new loan. In the commenter's 
example, the borrower's previously rehabilitated loan was paid in full 
through the consolidation process and has no bearing on the borrower's 
eligibility for rehabilitation of the consolidation loan. The 
Department agrees that the borrower is eligible to rehabilitate the 
defaulted consolidation loan, but does not believe it is necessary to 
separately address the treatment of consolidation loans in the 
regulations.
    Changes: None.

Definition of Lender (Sec.  682.200(b))

    Comment: One commenter asked whether the term ``other group'' in 
paragraph (5)(i)(A)(6) of the prohibited inducement provisions of the 
proposed definition of ``lender'' includes a lender's board of 
directors. The commenter asked the Department to clarify that a 
lender's board of directors would be covered by the prohibition even if 
the Department decided not to define the term.
    Discussion: The term ``other group'' is not defined in the HEA. The 
Department agrees, however, that service on a lender's board of 
directors is one of the groups established by a lender that would be 
covered under the provision. The Department declines to define the term 
``other group'' and does not believe it is possible to provide an all-
inclusive listing of the possible types of groups a lender may 
establish that would be covered by the prohibition.
    Changes: None.

Lender Disclosures (Sec.  682.205)

    Comment: One commenter raised concerns about the number of new and 
revised borrower disclosures that lenders must provide under proposed 
Sec.  682.205. The commenter indicated that his organization would need 
substantial time to prepare the disclosures, train its staff, and make 
necessary data processing changes to implement the regulations. The 
commenter requested that the Department extend the effective date of 
the lender disclosure provisions to one year after the final 
regulations are issued.
    Discussion: The Department notes that the new and revised borrower 
disclosures included in the proposed regulations are required as a 
result of the enactment of the HEOA and became effective in most cases 
on August 14, 2008. Lenders are expected to comply with the 
requirements to the extent possible until these implementing 
regulations become effective on July 1, 2010. The Department believes 
that providing information to borrowers, particularly those who are 
having difficulty making payments or who are past due on their 
payments, is critical, and therefore declines to delay the July 1, 
2010, effective date of these implementing regulations.
    Changes: None.
    Comment: Several commenters requested a change to Sec.  
682.205(c)(4) of the proposed regulations, which describes the 
information that must be provided to borrowers who contact their 
lenders indicating that they are having difficulty making their 
payments. The commenters were concerned that sending the required 
information repeatedly to a borrower if the borrower contacts the 
lender more than once over a short period of time would be ineffective 
and could confuse the borrower. The commenters requested that the 
Department require the lender to send the disclosure only if the lender 
had not sent one to the borrower within the previous 120 days. The 
commenters believed that this change would be comparable to a change 
agreed to during the negotiations related to the frequency of the 
required disclosure for borrowers who fall 60 days behind in making 
payments. The Department agreed that, in that situation, it was not 
beneficial to send multiple disclosures to a borrower who was rolling 
in and out of a 60-day delinquency status and, as a result, the 
proposed regulations do not require a lender to continue to send the 
60-day delinquency disclosure if one was sent to the borrower within 
the previous 120 days.
    Discussion: The Department does not agree that the disclosure 
required under Sec.  682.205(c)(4) when a borrower contacts the lender 
indicating he or she is having difficulty making payments is comparable 
to the disclosure of information in the 60-day delinquency situation. 
The 60-day delinquency disclosure is automatically triggered by the 
borrower's delinquency status and is in addition to other lender due 
diligence contacts with the borrower required under Sec.  682.411 of 
the FFEL regulations. In the case of a borrower having difficulty 
making payments, the borrower triggers the disclosure by contacting the 
lender and requesting assistance. Under these circumstances, we believe 
a lender has a responsibility and an obligation to assist the borrower 
by providing information as frequently as necessary to assist that 
borrower. The Department disagrees that the situations are comparable 
and declines to make the change requested by the commenters.
    Changes: None.

Executive Order 12866

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive order and subject to review by the Office 
of Management and Budget (OMB). Section 3(f) of Executive Order 12866 
defines a ``significant regulatory action'' as an action likely to 
result in a rule that may (1) have an annual effect on the economy of 
$100 million or more, or adversely affect a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local or Tribal governments or communities in a 
material way (also referred to as an ``economically significant'' 
rule); (2) create serious inconsistency or otherwise interfere with an 
action taken or planned by another agency; (3) materially alter the 
budgetary impacts of entitlement grants, user fees, or loan

[[Page 55980]]

programs or the rights and obligations of recipients thereof; or (4) 
raise novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in the Executive 
order.
    Pursuant to the terms of the Executive order, it has been 
determined this regulatory action will not have an annual effect on the 
economy of more than $100 million. Therefore, this action is not 
``economically significant'' and subject to OMB review under section 
3(f)(1) of Executive Order 12866. Notwithstanding this determination, 
the Secretary has assessed the potential costs and benefits of this 
regulatory action and has determined that the benefits justify the 
costs.

Need for Federal Regulatory Action

    As discussed in the NPRM, these regulations are needed to implement 
provisions of the HEA, as amended by the HEOA, particularly related to 
changes related to loan discharge, deferment, consolidation, 
rehabilitation, and repayment plan provisions, and the addition of a 
new Part E to title I of the HEA, which establishes extensive new 
disclosure requirements for lenders and institutions participating in 
Federal and private student loan programs.

Regulatory Alternatives Considered

    Regulatory alternatives were considered as part of the rulemaking 
process. These alternatives were reviewed in detail in the preamble to 
the NPRM under both the Regulatory Impact Analysis and the Reasons 
sections accompanying the discussion of each proposed regulatory 
provision. To the extent that they were addressed in response to 
comments received on the NPRM, alternatives are also considered 
elsewhere in the preamble to these final regulations under the 
Discussion sections related to each provision. No comments were 
received related to the Regulatory Impact Analysis discussion of these 
alternatives.
    As discussed above in the Analysis of Comments and Changes section, 
these final regulations reflect statutory amendments included in the 
HEOA and minor revisions in response to public comments. In most cases, 
these revisions were technical in nature and intended to address 
drafting issues or provide additional clarity. Other changes, such as 
the requirement that lenders rather than guaranty agencies notify 
veterans whose loans have been discharged that their obligation to make 
any further payments has been discharged, were made to simplify and 
standardize program operations. None of these changes result in 
revisions to cost estimates prepared for and discussed in the 
Regulatory Impact Analysis of the NPRM.

Benefits

    As discussed in the NPRM, benefits provided in these proposed 
regulations include greater transparency for borrowers participating in 
the Federal and private student loan programs; clearer guidelines on 
acceptable behavior by and relationships among institutions 
participating in the student loan programs; improvements to the IBR 
plan, particularly for married borrowers; a simpler process for 
obtaining loan discharges due to total and permanent disability; and 
expanded eligibility for Teacher Loan forgiveness benefits. It is 
difficult to quantify benefits related to the new institutional and 
lender requirements, as there is little specific data available on 
either the extent of improper or questionable relationships between 
institutions and lenders prior to the HEOA or of the harm such 
relationships actually caused for either borrowers, institutions, or 
the Federal taxpayer. In the NPRM, the Department requested comments or 
data that would support a more rigorous analysis of the impact of these 
provisions. No comments or additional data were received.
    Benefits under these regulations flow directly from statutory 
changes included in the HEOA; they are not materially affected by 
discretionary choices exercised by the Department in developing these 
regulations, or by changes made in response to comments on the NPRM. As 
noted in the Regulatory Impact Analysis in the NPRM, these proposed 
provisions result in net costs to the government of $192.7 million over 
2009-2013.

Costs

    As discussed extensively in the Regulatory Impact Analysis in the 
NPRM, many of the statutory provisions implemented though these 
regulations will require regulated entities to develop new disclosures 
and other materials, as well as accompanying dissemination processes. 
Other regulations generally would require discrete changes in specific 
parameters associated with existing guidance--such as changes to the 
process for loan discharges, IBR, and various deferment and forbearance 
benefits--rather than wholly new requirements. In total, these changes 
are estimated to increase burden on entities participating in the FFEL 
program by 1,313,964 hours. Of this increased burden, 1,184,115 hours 
are associated with lenders, 110,360 hours with guaranty agencies, and 
7,200 hours with institutions. An additional 12,289 hours are 
associated with borrowers, generally reflecting the time required to 
read new disclosures or submit required information.
    For lenders, over half of the additional burden--798,000 hours--is 
related to the requirement to provide additional disclosures to 
borrowers who are over 60 days delinquent or are otherwise having 
trouble making repayments. Another 216,000 hours are associated with 
new requirements related to the provision of administrative 
forbearances. Roughly 90,000 hours in new burden are related to changes 
in the methodology for calculating income-based repayments. The balance 
of additional burden is spread across a number of minor changes made by 
these regulations.
    For guaranty agencies, virtually the entire additional burden 
relates to new requirements to provide information to borrowers who are 
in default or have rehabilitated their loans after being in default. 
Other minor additional burden for guaranty agencies results from new 
requirements to provide consumer information.
    The monetized cost of this additional burden, using loaded wage 
data developed by the Bureau of Labor Statistics, is $24,334,225, of 
which $21.95 million is associated with lenders, $2.05 million with 
guaranty agencies, $0.2 million with borrowers, and $0.13 million with 
schools. Given the large number of entities affected by these 
provisions, actual burden on individual entities is not substantial.
    Because data underlying many of these burden estimates was limited, 
in the NPRM, the Department requested comments and supporting 
information for use in developing more robust estimates. In particular, 
we asked institutions to provide detailed data on actual staffing and 
system costs associated with implementing these regulations. No 
comments or additional data were received.

Net Budget Impacts

    As discussed more fully in the Regulatory Impact Analysis of the 
NPRM, HEOA provisions implemented by these regulations are estimated to 
have a net budget impact of $34.7 million in 2009 and $192.7 million 
over FY 2009-2013. (The estimated impact for 2009 does not include 
$144.2 million in costs related to loans originated in prior fiscal 
years.) Consistent with the requirements of the Credit Reform Act of 
1990, budget cost estimates for the student loan programs reflect the 
estimated net present value of

[[Page 55981]]

all future non-administrative Federal costs associated with a cohort of 
loans. (A cohort reflects all loans originated in a given fiscal year.)
    The budgetary impact of these regulations is largely driven by 
statutory changes involving teacher loan forgiveness, loan discharges, 
and IBR. The Department estimates no budgetary impact for other 
provisions included in these regulations; there is no data indicating 
that the new requirements related to improper inducements and 
additional loan disclosures will have any impact on the volume or 
composition of Federal student loans.

Assumptions, Limitations, and Data Sources

    As noted in the NPRM, because these regulations would largely 
restate statutory requirements that would be self-implementing in the 
absence of regulatory action, impact estimates provided in the 
preceding section reflect a pre-statutory baseline in which the HEOA 
changes implemented in these proposed regulations do not exist. Costs 
have been quantified for five years.
    In developing these estimates, a wide range of data sources were 
used, including data from the NSLDS; operational and financial data 
from Department systems; and data from a range of surveys conducted by 
the National Center for Education Statistics, such as the 2004 National 
Postsecondary Student Aid Survey, the 1994 National Education 
Longitudinal Study, and the 1996 Beginning Postsecondary Student 
Survey. Data from other sources, such as the Census Bureau, were also 
used.
    Elsewhere in this SUPPLEMENTARY INFORMATION section we identify and 
explain burdens specifically associated with information collection 
requirements. See the heading Paperwork Reduction Act of 1995.

Accounting Statement

    In Table 2 below, we have prepared an accounting statement showing 
the classification of the expenditures associated with the provisions 
of these proposed regulations. This table provides our best estimate of 
the changes in Federal student aid payments as a result of these 
proposed regulations. Expenditures are classified as transfers from the 
Federal government to student loan borrowers (for expanded loan 
discharges, teacher loan forgiveness payments).

 Table 2--Accounting Statement: Classification of Estimated Expenditures
                              [In millions]
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $57.
From Whom To Whom?.....................  Federal Government to Student
                                          Loan Borrowers.
------------------------------------------------------------------------

Regulatory Flexibility Act Certification

    The Secretary certifies that these regulations would not have a 
significant economic impact on a substantial number of small entities. 
These regulations would affect institutions of higher education, 
lenders, and guaranty agencies that participate in Title IV, HEA 
programs and individual students and loan borrowers. The U.S. Small 
Business Administration Size Standards define institutions and lenders 
as ``small entities'' if they are for-profit or nonprofit institutions 
with total annual revenue below $5,000,000 or if they are institutions 
controlled by small governmental jurisdictions, which are comprised of 
cities, counties, towns, townships, villages, school districts, or 
special districts, with a population of less than 50,000.
    As discussed in more detail in the Regulatory Flexibility Act 
section of the NPRM, data from the Integrated Postsecondary Education 
Data System (IPEDS) indicate that roughly 1,200 institutions 
participating in the FFEL program meet the definition of ``small 
entities.'' Institutional burden stemming from these regulations is 
associated with audit requirements for schools serving as lenders. 
Institutions meeting the definition of small entities are extremely 
unlikely to act as lenders in the FFEL program. Accordingly, new 
requirements imposed under these regulations are not expected to impose 
significant new costs on these institutions.
    The Department believes few if any lenders participating in the 
FFEL program have revenues of less than $5 million. Lenders of this 
size are extremely unlikely to engage in the type of activities--
inducements, etc.--governed by these regulations. Accordingly, the 
Department has determined that the regulations did not represent a 
significant burden on small lenders.
    Guaranty agencies are State and private nonprofit entities that act 
as agents of the Federal government, and as such are not considered 
``small entities'' under the Regulatory Flexibility Act. The impact of 
the regulations on individuals is not subject to the Regulatory 
Flexibility Act.
    In the NPRM, the Secretary invited comments from small institutions 
and lenders as to whether they believe the proposed changes would have 
a significant economic impact on them. No comments were received.

Paperwork Reduction Act of 1995

    Sections 674.61, 682.202, 682.205, 682.206, 682.208, 682.210, 
682.211, 682.216, 682.302, 682.305, 682.401, 682.402, 682.410, 682.601, 
685.202, 685.204, 685.205, 685.213, and 685.217 contain information 
collection requirements. Under the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)), the Department of Education has submitted a copy of 
these sections to the Office of Management and Budget (OMB) for its 
review.

Sections 674.61, 682.402, and 685.213--Total and Permanent Disability 
Loan Discharges

    The final regulations revise the loan discharge process for 
borrowers seeking to have their title IV loans discharged based on a 
total and permanent disability. The changes to the loan discharge 
process affect borrowers, loan holders (and their servicers), and 
guaranty agencies.
    The burden hour estimate associated with the current total and 
permanent disability loan discharge provisions is reported under OMB 
Control Number 1845-0065 (Discharge Application: Total and Permanent 
Disability). The Department does not expect these changes to increase 
the burden for this collection. However, the Department will need to 
revise the Discharge Application: Total and Permanent Disability 
currently approved under 1845-0065 to reflect these final regulations. 
The Department will submit a revised form for clearance after the final 
regulations have been published. The revised form will not be needed 
until July 1, 2010, the effective date of the final regulations.

[[Page 55982]]

    In response to public comments, the Department revised Sec.  
682.402(c)(8)(ii)(F) to specify that upon receipt of a claim payment 
from the guaranty agency (after the Department has notified the 
guaranty agency that a borrower is eligible for a discharge under the 
separate discharge process for certain veterans), the lender notifies 
the veteran that the veteran's obligation to make any further payments 
on the loan has been discharged. Under the proposed regulations, the 
guaranty agency would have been responsible for notifying the veteran 
of the discharge. This change from the proposed regulations has no 
effect on burden for lenders or guaranty agencies, as it simply makes 
the borrower notification process under the special discharge 
procedures for veterans consistent with the general discharge 
procedures for other borrowers and the notification requirements under 
existing regulations.

Section 682.206--Consolidation Loans

    The final regulations revise Sec.  682.206(f) to incorporate a new 
requirement that is needed to fully implement proposed Sec.  
682.205(i)(7), which requires lenders to inform borrowers that, by 
applying for the Consolidation loan, the borrower is not obligated to 
take the loan. Specifically, Sec.  682.206(f) is revised 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 final regulations 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.
    We estimate that these changes will increase burden for borrowers 
by 10,032 hours and for loan holders (and their servicers) by 54,552 
hours for a total increase in burden of 64,584 hours in OMB Control 
Number 1845-0020.

Sections 682.210, 682.211, 685.204 and 685.205--In-School Deferments 
and Administrative Forbearance for PLUS Loans

    The final regulations revise Sec. Sec.  682.210 and 685.204 to 
reflect statutory deferment provisions for FFEL and Direct PLUS loan 
borrowers with loans first disbursed on or after July 1, 2008. Upon the 
request of the borrower, a parent PLUS borrower must be granted a 
deferment on a PLUS loan first disbursed on or after July 1, 2008, 
during the period when the student on whose behalf the loan was 
obtained is enrolled on at least a half-time basis at an eligible 
institution, 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.
    For graduate and professional student PLUS borrowers, the final 
regulations provide that a borrower may be granted a deferment on 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 
on at least a half-time basis at an eligible institution. If a lender 
or the Secretary grants an in-school deferment on a student PLUS loan 
based on information from the borrower's school about the borrower's 
eligibility for a new loan, student status information from the school 
or information from NSLDS confirming the borrower's half-time 
enrollment status, the in-school deferment period for a student PLUS 
loan first disbursed on or after July 1, 2008 would include the 6-month 
period that begins on the day after the student PLUS borrower ceases to 
be enrolled on at least a half-time basis.
    The final regulations also add a new administrative forbearance 
provision to Sec.  682.211(f) allowing a lender to grant a forbearance, 
upon notice to the borrower, on a borrower's PLUS loans first disbursed 
before July 1, 2008 to align repayment of the loans with a borrower's 
PLUS loans first disbursed on or after July 1, 2008, or with a 
borrower's Stafford loans that are subject to a grace period. The 
lender is required to notify the borrower that he or she has the option 
to cancel the forbearance and to continue paying on the loan. A 
corresponding administrative forbearance provision will be added to 
Sec.  685.205(b) in the Direct Loan Program regulations.
    The changes to Sec. Sec.  682.210 and 685.204 affect borrowers and 
loan holders (and their servicers). The new deferment provisions for 
certain PLUS borrowers are expected to increase the number of borrowers 
who apply for deferments. Because these statutory provisions could be 
implemented without regulations, the FFEL and Direct Loan deferment 
request forms were previously revised to include the new deferments for 
PLUS borrowers and have been approved under OMB Control Numbers 1845-
0005 (FFEL Program Deferment Request Forms) and 1845-0011 (Direct Loan 
Program Deferment Request Forms). The increased burden associated with 
the final regulatory changes is reflected in the burden estimates 
reported under those control numbers.
    We estimate that the final regulations in Sec.  682.211(e) related 
to administrative forbearances will increase burden for loan holders by 
14,440 hours in OMB Control Number 1845-0020.

Sections 682.215 and 685.221--Income-Based Repayment (IBR) Plan

    The final regulations revise the definition of partial financial 
hardship in Sec.  682.215(a)(4) and 685.221(a)(4) to specify that the 
annual amount due on a borrower's eligible loans for purposes of 
determining whether the borrower has a partial financial hardship is 
the greater of the amount due on the eligible loans when the borrower 
initially entered repayment on those loans, or the amount due on those 
loans when the borrower elects the IBR plan. The final regulations also 
provide that when a married borrower and his or her spouse file a joint 
Federal tax return with the IRS and both the borrower and the spouse 
have eligible loans, the joint AGI and the total amount of the 
borrower's and spouse's eligible loans will be used in determining 
whether each borrower has a partial financial hardship.
    The final regulations revise Sec. Sec.  682.215(b)(1) and 
685.221(b)(2) to provide that if a borrower and a borrower's spouse 
both have eligible loans and filed a joint Federal tax return, each 
borrower's percentage of the couple's total eligible loan debt would be 
determined, and the calculated partial financial hardship payment 
amount for each borrower would be adjusted by multiplying the payment 
by the applicable borrower's percentage. As with all other borrowers, 
each borrower's adjusted payment amount would be further adjusted if 
the borrower's loans are held by multiple holders.
    We estimate that the final regulations will increase burden for 
loan holders by 90,286 hours in OMB Control Number 1845-0020.

Sections 682.202, 682.302, and 685.202--Applicability of the 
Servicemembers Civil Relief Act (SCRA) to FFEL and Direct Loan Program 
Loans

    The final regulations revise Sec. Sec.  682.202 and 685.202 to 
provide that, effective August 14, 2008, upon a loan holder's receipt 
of a written request from a borrower and a copy of the borrower's 
military orders, the maximum interest rate (as defined in 50 U.S.C. 
527, App, section 207(d)) that may be charged on FFEL or Direct Loan 
program loans made prior to the borrower entering active duty status is 
six percent while the borrower is on active duty status. The final 
regulations

[[Page 55983]]

would also revise Sec.  682.302 of the FFEL regulations by adding a new 
paragraph (h) that specifies that, for FFEL loans first disbursed on or 
after July 1, 2008, that are subject to the SCRA interest rate cap, the 
FFEL lender's special allowance payment is calculated as it otherwise 
would be under program requirements, except that the applicable 
interest rate used is six percent.
    We estimate that the final regulations will increase burden for 
borrowers by 1,694 hours and for loan holders by 542 hours in new OMB 
Control Number 1845-XXX1. We estimate that the final regulations will 
increase burden for borrowers by 563 hours in new OMB Control Number 
1845-XXX2.

Sections 682.210 and 685.204--In-School Deferment

    The final regulations revise Sec.  682.210(a)(3) of the FFEL 
regulations to provide that if a borrower is responsible for the 
interest on a loan during a deferment period, the lender, at or before 
the time the deferment is granted, must notify the borrower that he or 
she has the option to pay the accruing interest or cancel the deferment 
and continue paying on the loan. The lender is also required to provide 
information, including an example, on the impact on a borrower's loan 
debt of capitalization of accrued unpaid interest and on the total 
amount of interest to be paid over the life of the loan. A similar 
notification provision that applied only to the granting of in-school 
deferments is removed from Sec.  682.210(c)(2) of the FFEL regulations. 
A comparable change is made in Sec.  685.204(b)(1)(iii)(B) of the 
Direct Loan regulations to provide that borrowers will be notified of 
their option to cancel a deferment and continue paying on the loan and 
will be provided with information on the impact of capitalization, 
including an example.
    The changes to Sec. Sec.  682.210 and 685.204 affect borrowers and 
loan holders (and their servicers). The FFEL and Direct Loan deferment 
request forms currently approved under OMB Control Numbers 1845-0005 
and 1845-0011 already include the information that a loan holder must 
provide to a borrower at or before the time a deferment is granted, as 
described above. Therefore, there is no increase in burden associated 
with the final regulations.

Sections 682.216 and 685.217--FFEL and Direct Loan Program Teacher Loan 
Forgiveness

    The final regulations allow a borrower who otherwise meets the 
eligibility requirements for teacher loan forgiveness to receive 
forgiveness based on teaching service performed at one or more eligible 
elementary or secondary schools that serve low-income families, or one 
or more eligible educational service agencies that serve low-income 
families. A borrower can also qualify based on teaching service 
performed at a combination of eligible elementary or secondary schools 
and eligible educational service agencies. To be considered eligible 
for teacher loan forgiveness purposes, an educational service agency 
has to meet the same eligibility requirements that apply to elementary 
and secondary schools.
    These changes will increase the number of borrowers who are 
eligible for teacher loan forgiveness, and will require a revision of 
the FFEL and Direct Loan Program Teacher Loan Forgiveness Application 
that is currently approved under OMB Control Number 1845-0059. The 
Department will submit a change request for 1845-0059 (including an 
adjustment to the burden hours associated with this collection) after 
the final regulations have been published.

Section 682.205--Disclosure Requirements for Lenders

    The final regulations reorganize and expand Sec.  682.205 to 
reflect new disclosure requirements added by the HEOA. The HEOA added 
additional disclosures by lenders before disbursement and requires new 
disclosures at differing points in the borrower's repayment cycle. The 
HEOA also added a separate set of disclosures specifically for 
Consolidation loan borrowers.
    We estimate that the final regulations will increase burden for 
loan holders (and their servicers) by 797,661 hours in OMB Control 
Number 1845-0020.

Section 682.208--Information to Borrowers Upon Transfer, Sale or 
Assignment of a FFEL Program Loan

    The final regulations incorporate three additional information 
items specified in the HEA that must be provided to a borrower if the 
assignment or transfer of an ownership interest in a FFEL program loan 
results in a change in the identity of the party to whom subsequent 
payments must be sent. The three additional data items are: (1) The 
effective date of the assignment or transfer of the loan; (2) the date 
on which the current loan servicer will cease accepting payments; and 
(3) the date on which the new loan servicer will begin accepting 
payments. The date on which the current servicer will stop accepting 
payments is required only if that is applicable.
    Loan holders are already required, under current regulations, to 
provide certain information to a borrower if the assignment of a FFEL 
Program loan results in a change in the identity of the party to whom 
the borrower must send payments. The final regulations merely add three 
additional items to the notice that a loan holder is already required 
to provide. Therefore, the Department believes that the final 
regulations will not significantly increase burden for loan holders 
(and their servicers) in OMB Control Number 1845-0020.

Section 682.211--Forbearance

    Section 682.211(e) of the final regulations requires the lender, at 
the time the borrower is granted a forbearance, to give the borrower 
information about the impact of capitalization of interest on the loan 
and the total amount to be repaid over the life of the loan. The final 
regulations also require the lender to contact the borrower at least 
once every 180 days during any period of forbearance and to give the 
borrower or endorser more specific information, in conjunction with 
that required under existing regulations, as to the impact of 
forbearance on the loan. This information includes the amount of 
interest that will be capitalized and when that capitalization will 
take place and the option of the borrower or endorser to pay the 
interest that has accrued before it is capitalized.
    We estimate that the final regulations will increase burden for 
loan holders (and their servicers) by 215,734 hours in OMB Control 
Number 1845-0020.

Sections 682.305 and 682.601--Audit Requirements for a FFEL School 
Lender or an Eligible Lender Trustee (ELT)

    The final regulations revise Sec.  682.305(c) to require that a 
FFEL school lender, or a lender serving as a trustee on behalf of a 
school or school-affiliated organization for the purpose of originating 
loans, submit an annual compliance audit to the Department regardless 
of the dollar volume of loans originated. The final regulations also 
require that the audit be conducted by a qualified, independent 
organization or person. Section 682.305(c)(2)(vii) governs the 
compliance audit of a school or school-affiliated organization lender 
trustee. The final regulations require that the trustee's audit include 
a determination that the school for whom the lender serves as trustee 
used all the proceeds from special allowance payments, interest 
subsidies received from the Department, and any proceeds from the sale 
or other disposition of the loans originated through the lender for

[[Page 55984]]

need-based grants, and that those funds supplemented, but did not 
supplant, other Federal or non-Federal funds otherwise available to the 
school to make need-based grants to its students. The final regulations 
also require that the audit determine that no more than a reasonable 
portion of the payments and proceeds from the loans were used for 
direct administrative expenses in accordance with Sec.  682.601(b) of 
the current regulations. These same requirements with regard to annual 
compliance audit determinations were also added to the FFEL school 
lender audit requirements in Sec.  682.601(a)(7) of the regulations.
    We estimate that the final regulations will increase burden for 
institutions by 7,200 hours and for loan holders (and their servicers) 
by 10,900 hours for a total increase in burden of 18,100 hours in OMB 
Control Number 1845-0020.

Section 682.401--Consumer Education Information Provided by Guaranty 
Agencies

    The final regulations require a guaranty agency to work with the 
schools that it serves to develop and make available high-quality 
educational materials and programs that provide training for students 
and their families in budgeting and financial management, including 
debt management and other aspects of financial literacy, such as the 
cost of using high-interest loans to pay for postsecondary education, 
and how budgeting and financial management relate to the title IV 
student loan programs.
    We estimate that the final regulations will increase burden for 
institutions and guaranty agencies by 8,748 hours in OMB Control Number 
1845-0020.

Section 682.405--Financial and Economic Literacy for Rehabilitated 
Borrowers

    The final regulations revise Sec.  682.405, regarding loan 
rehabilitation agreements, by adding a provision requiring guaranty 
agencies to make available financial and economic education materials, 
including debt management information, to any borrower who has 
rehabilitated a defaulted loan.
    We estimate that the final regulations will increase burden for 
guaranty agencies by 24,427 hours in OMB Control Number 1845-0020.

Section 682.405--Consumer Credit Reporting Following Loan 
Rehabilitation

    If a borrower successfully rehabilitates a previously defaulted 
loan, the final regulations require the prior holder of the loan, in 
addition to the guaranty agency, to request that a consumer reporting 
agency to which the default was reported remove the default from the 
borrower's credit history. The final regulations also provide more 
detailed reporting deadlines for the guaranty agency and prior loan 
holder to request removal of the report of the default from the 
borrower's credit history, and reduce the overall period for this 
activity from 90 to 75 days.
    We estimate that the final regulations will increase burden for 
guaranty agencies by 18,392 hours in OMB Control Number 1845-0020.

Section 682.410--Notifications to Borrowers in Default

    The final regulations expand the information that must be provided 
in the notice required under Sec.  682.410(b)(5)(ii) to include 
information on the options that are available to the borrower to remove 
the loan from default, including an explanation of the fees and 
conditions associated with each option. The final regulations also 
require a guaranty agency to provide this same information to a 
defaulted borrower in a second notice that the guaranty agency must 
send as part of its required collection efforts on a defaulted loan 
under Sec.  682.410(b)(6). The second notice has to be sent within a 
reasonable time after the end of the period during which the borrower 
may request an administrative review as specified in Sec.  
682.410(b)(5)(iv)(B) or, if the borrower has requested an 
administrative review, within a reasonable time following the 
conclusion of the administrative review.
    We estimate that the final regulations will increase burden for 
guaranty agencies by 58,793 hours in OMB Control Number 1845-0020.
    Consistent with the discussion above, the following chart describes 
the sections of the final regulations involving information 
collections, the information being collected, and the collections that 
the Department submitted to the Office of Management and Budget for 
approval and public comment under the Paperwork Reduction Act.

----------------------------------------------------------------------------------------------------------------
         Regulatory section                  Information collection                      Collection
----------------------------------------------------------------------------------------------------------------
674.61, 682.402, and 685.213.......  The final regulations revise the loan  OMB 1845-0065. The Discharge
                                      discharge process for borrowers        Application: Total and Permanent
                                      seeking to have their title IV loans   Disability that is currently
                                      discharged based on total and          approved under 1845-0065 will be
                                      permanent disability. Borrowers who    revised to reflect the final
                                      apply for a total and permanent        regulations that will be published
                                      disability discharge must complete a   by November 1, 2009. The Department
                                      discharge application that collects    will submit a revised form for
                                      the information needed to determine    clearance after the final
                                      their eligibility for discharge.       regulations have been published.
                                                                             The revised form will not be needed
                                                                             until July 1, 2010, the effective
                                                                             date of the final regulations.
682.206............................  Sec.   682.206(f) is amended to        OMB 1845-0020. There will be an
                                      include a requirement that the         increase in burden of 64,584 hours.
                                      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.
682.210, 682.211, 685.204 and        The final regulations implement the    OMB 1845-0005, 1845-0011 and 1845-
 685.205.                             new deferment provisions for FFEL      0020. The FFEL and Direct Loan
                                      and Direct PLUS loan borrowers with    deferment request forms were
                                      loans first disbursed on or after      previously revised to include the
                                      July 1, 2008 that were added to the    new deferments for PLUS borrowers
                                      HEA by the HEOA. A loan holder must    and have been approved under OMB
                                      collect the information needed to      Control Numbers 1845-0005 (FFEL)
                                      determine that a borrower is           and 1845-0011 (Direct Loan). There
                                      eligible for a deferment.              will be an increase in burden of
                                                                             14,440 hours in OMB 1845-0020.

[[Page 55985]]


682.202, 682.302, and 685.202......  The final regulations provide that,    OMB 1845-XXX1 and 1845-XXX2. These
                                      effective August 14, 2008, upon a      are new collections. A separate 60-
                                      loan holder's receipt of a written     day Federal Register Notice has
                                      request from a borrower and a copy     been published to solicit comments.
                                      of the borrower's military orders,     In OMB 1845-XXX1 there will be an
                                      the maximum interest rate that may     increase in burden of 2,236 hours.
                                      be charged on FFEL or Direct Loan      In OMB 1845-XXX there will be an
                                      program loans made prior to the        increase in burden of 563 hours.
                                      borrower entering active duty status
                                      is six percent while the borrower is
                                      on active duty status.
682.210 and 685.204................  The final regulations require a loan   OMB 1845-0005 and 1845-0011. These
                                      holder to provide information about    collections (FFEL and Direct Loan
                                      interest capitalization to a           Program deferment request forms)
                                      borrower prior to or at the time of    were previously revised to include
                                      granting a deferment on an             the required information about
                                      unsubsidized loan.                     interest capitalization and have
                                                                             been approved by OMB.
682.215 and 685.221................  The final regulations revise the       OMB 1845-0020. There will be an
                                      definition of partial financial        increase in burden of 90,286 hours.
                                      hardship for purposes of determining
                                      a borrower's eligibility for the
                                      income-based repayment plan and
                                      would also revise the provisions
                                      governing a loan holder's
                                      calculation of a borrower's income-
                                      based payment amount.
682.216 and 685.217................  The final regulations expand           OMB 1845-0059. The final regulations
                                      eligibility for teacher loan           require a revision of the FFEL and
                                      forgiveness to allow a borrower who    Direct Loan Program Teacher Loan
                                      otherwise meets the loan forgiveness   Forgiveness Application currently
                                      eligibility requirements to receive    approved under OMB Control Number
                                      forgiveness based on teaching          1845-0059. The Department will
                                      service performed at one or more       submit a change request for 1845-
                                      eligible educational service           0059 (including an adjustment to
                                      agencies that serve low-income         the burden hours associated with
                                      families.                              this collection) after the final
                                                                             regulations have been published.
682.205............................  The final regulations implement new    OMB 1845-0020. There will be an
                                      statutory requirements for lenders     increase in burden of 797,661
                                      to disclose certain information to     hours.
                                      borrowers at various points during
                                      the lifecycle of a borrower's loan.
                                      The proposed regulations also add
                                      new lender disclosure requirements
                                      for consolidation loan borrowers.
682.208............................  The final regulations incorporate      OMB 1845-0020. There will be no
                                      three additional information items     change in burden hours.
                                      that must be provided to a borrower
                                      if the assignment or transfer of an
                                      ownership interest in a FFEL program
                                      loan results in a change in the
                                      identity of the party to whom
                                      subsequent payments must be sent.
682.211............................  The final regulations require the      OMB 1845-0020. There will be an
                                      lender, at the time the borrower is    increase in burden of 215,734
                                      granted a forbearance, to give the     hours.
                                      borrower information about the
                                      impact of capitalization of interest
                                      on the loan and the total to be
                                      repaid over the life of the loan.
682.305 and 682.601................  The final regulations amend Sec.       OMB 1845-0020. There will be an
                                      682.305(c) to require that a FFEL      increase in burden of 181,100
                                      school lender, or a lender serving     hours.
                                      as a trustee on behalf of a school
                                      or school-affiliated organization
                                      for the purpose of originating
                                      loans, submit an annual compliance
                                      audit to the Department regardless
                                      of the dollar volume of loans
                                      originated.
682.401............................  The final regulations require          OMB 1845-0020. There will be an
                                      guaranty agencies to work with the     increase in burden of 8,748 hours.
                                      schools that it serves to develop
                                      and make available high-quality
                                      educational materials and programs
                                      to provide training for students and
                                      their families in budgeting and
                                      financial management, including debt
                                      management and other aspects of
                                      financial literacy, such as the cost
                                      of using high-interest loans to pay
                                      for postsecondary education, and how
                                      budgeting and financial management
                                      relate to the title IV student loan
                                      programs.
682.405............................  The final regulations require          OMB 1845-0020. There will be an
                                      guaranty agencies to provide certain   increase in burden of 24,427 hours.
                                      information to borrowers who have
                                      rehabilitated defaulted loans.
682.405............................  The final regulations require the      OMB 1845-0020. There will be an
                                      prior holder of a previously           increase in burden of 18,392 hours.
                                      defaulted loan, in addition to the
                                      guaranty agency, to request that
                                      consumer reporting agencies remove
                                      the record of the default from the
                                      borrower's credit history after the
                                      borrower has successfully
                                      rehabilitated the loan.
682.410............................  The final regulations require          OMB 1845-0020. There will be an
                                      guaranty agencies to provide certain   increase in burden of 58,793 hours.
                                      additional notifications to
                                      borrowers who are in default.
----------------------------------------------------------------------------------------------------------------


[[Page 55986]]

Assessment of Educational Impact

    Based on our own review, we have determined that these final 
regulations do not require transmission of information that any other 
agency or authority of the United States gathers or makes available.

Electronic Access to This Document

    You may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at the following site: 
http://www.ed.gov/news/FedRegister.
    To use PDF you must have Adobe Acrobat Reader, which is available 
free at this site. If you have questions about using PDF, call the U.S. 
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in 
the Washington, DC area at (202) 512-1530.

    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: 
http://www.access.gpo.gov/nara/index.html.

(Catalog of Federal Domestic Assistance Number: 84.032 Federal 
Family Education Loan Program; 84.037 Federal Perkins Loan Program; 
and 84.268 William D. Ford Federal Direct Loan Program)

List of Subjects in 34 CFR Parts 673, 674, 682, and 685

    Administrative practice and procedure, Colleges and universities, 
Education, Loan programs--education, Reporting and recordkeeping 
requirements, Student aid, and Vocational education.

    Dated: October 15, 2009.
Arne Duncan,
Secretary of Education.

0
For the reasons discussed in the preamble, the Secretary amends parts 
673, 674, 682, and 685 of title 34 of the Code of Federal Regulations 
as follows:

PART 673--GENERAL PROVISIONS FOR THE FEDERAL PERKINS LOAN PROGRAM, 
FEDERAL WORK-STUDY PROGRAM, AND FEDERAL SUPPLEMENTAL EDUCATIONAL 
OPPORTUNITY GRANT PROGRAM

0
1. The authority citation for part 673 continues to read as follows:

    Authority: 20 U.S.C. 421-429, 1070b-1070b-3, 1070g, 1087aa-
1087ii, 42 U.S.C. 2751-2756b, unless otherwise noted.

0
2. Section 673.5(c) is amended by:
0
A. Revising paragraph (c)(1)(v).
0
B. In paragraph (c)(1)(vi), removing the words ``and ROTC 
scholarships''.
0
C. Revising paragraph (c)(1)(ix).
0
D. In paragraph (c)(2)(iii), removing the word ``and'' immediately 
after the semicolon at the end of the paragraph.
0
E. In paragraph (c)(2)(iv), removing the words ``this part'' and 
adding, in their place, the words ``a title IV, HEA program,'' and 
removing the punctuation ``.'' at the end of the paragraph and adding, 
in its place, the punctuation ``;''.
0
F. Adding a new paragraph (c)(2)(v).
0
G. Adding a new paragraph (c)(2)(vi).
0
H. In paragraph (c)(3), removing the words ``veterans education 
benefits paid under Chapter 30 of title 38 of the United States Code 
(Montgomery GI Bill-Active Duty) and''.
    The revisions and additions read as follows:


Sec.  673.5  Overaward.

    (c) * * *
    (1) * * *
    (v) Grants, including FSEOGs, State grants, Academic 
Competitiveness Grants, and National SMART Grants;
* * * * *
    (ix) Except as provided in paragraph (c)(2)(v) of this section, 
veterans' education benefits;
* * * * *
    (2) * * *
    (v) Federal veterans' education benefits paid under--
    (A) Chapter 103 of title 10, United States Code (Senior Reserve 
Officers' Training Corps);
    (B) Chapter 106A of title 10, United States Code (Educational 
Assistance for Persons Enlisting for Active Duty);
    (C) Chapter 1606 of title 10, United States Code (Selected Reserve 
Educational Assistance Program);
    (D) Chapter 1607 of title 10, United States Code (Educational 
Assistance Program for Reserve Component Members Supporting Contingency 
Operations and Certain Other Operations);
    (E) Chapter 30 of title 38, United States Code (All-Volunteer Force 
Educational Assistance Program, also known as the ``Montgomery GI 
Bill--active duty'');
    (F) Chapter 31 of title 38, United States Code (Training and 
Rehabilitation for Veterans with Service-Connected Disabilities);
    (G) Chapter 32 of title 38, United States Code (Post-Vietnam Era 
Veterans' Educational Assistance Program);
    (H) Chapter 33 of title 38, United States Code (Post 9/11 
Educational Assistance);
    (I) Chapter 35 of title 38, United States Code (Survivors' and 
Dependents' Educational Assistance Program);
    (J) Section 903 of the Department of Defense Authorization Act, 
1981 (10 U.S.C. 2141 note) (Educational Assistance Pilot Program);
    (K) Section 156(b) of the ``Joint Resolution making further 
continuing appropriations and providing for productive employment for 
the fiscal year 1983, and for other purposes'' (42 U.S.C. 402 note) 
(Restored Entitlement Program for Survivors, also known as ``Quayle 
benefits'');
    (L) The provisions of chapter 3 of title 37, United States Code, 
related to subsistence allowances for members of the Reserve Officers 
Training Corps; and
    (M) Any program that the Secretary may determine is covered by 
section 480(c)(2) of the HEA; and
    (vi) Iraq and Afghanistan Service Grants made under section 420R of 
the HEA.
* * * * *

PART 674--FEDERAL PERKINS LOAN PROGRAM

0
3. The authority citation for part 674 continues to read as follows:

    Authority: 20 U.S.C. 1087aa-1087hh and 20 U.S.C. 421-429 unless 
otherwise noted.


0
4. Section 674.9 is amended by:
0
A. Revising paragraph (g).
0
B. In the introductory text of paragraph (h), removing the words 
``based on'' and adding, in their place, the word ``after'', and adding 
the words ``based on a discharge request received prior to July 1, 
2010'' immediately after the word ``disabled''.
0
C. In paragraph (h)(1), removing the words ``paragraphs (h)(1) and 
(h)(2)'' and adding, in their place, the words ``paragraphs (g)(1) and 
(g)(2)''.
0
D. In paragraph (h)(2)(ii), removing the words ``, as described in 
Sec.  674.61(b)(9)'' immediately after the word ``period''.
0
E. In the second sentence of paragraph (i), removing the words 
``described in Sec. Sec.  674.61(b), 682.402(c), or 685.213(a)'' 
immediately after the word ``period''.
    The revision reads as follows:


Sec.  674.9  Student eligibility.

* * * * *
    (g) In the case of a borrower whose prior loan under title IV of 
the Act or whose TEACH Grant service obligation was discharged after a 
final determination of total and permanent disability--
    (1) Obtains a certification from a physician that the borrower is 
able to engage in substantial gainful activity;
    (2) Signs a statement acknowledging that any new Federal Perkins 
Loan the borrower receives cannot be discharged

[[Page 55987]]

in the future on the basis of any present impairment, unless that 
condition substantially deteriorates; and
    (3) If the borrower receives a new Federal Perkins Loan within 
three years of the date that any previous title IV loan or TEACH Grant 
service obligation was discharged due to a total and permanent 
disability in accordance with Sec.  674.61(b)(3)(i), 34 CFR 682.402(c), 
34 CFR 685.213, or 34 CFR 686.42(b) based on a discharge request 
received on or after July 1, 2010, resumes repayment on the previously 
discharged loan in accordance with Sec.  674.61(b)(5), 34 CFR 
682.402(c)(5), or 34 CFR 685.213(b)(4), or acknowledges that he or she 
is once again subject to the terms of the TEACH Grant agreement to 
serve before receiving the new loan.
* * * * *
0
5-6. Section 674.61 is amended by:
0
A. Revising paragraph (b).
0
B. Redesignating paragraphs (c) and (d) as paragraphs (d) and (e), 
respectively.
0
C. Adding a new paragraph (c).
    The revision and addition read as follows:


Sec.  674.61  Discharge for death or disability.

* * * * *
    (b) Total and permanent disability as defined in Sec.  
674.51(aa)(1)--
    (1) General. A borrower's Defense, NDSL, or Perkins loan is 
discharged if the borrower becomes totally and permanently disabled, as 
defined in Sec.  674.51(aa)(1), and satisfies the additional 
eligibility requirements contained in this section.
    (2) Discharge application process for borrowers who have a total 
and permanent disability as defined in Sec.  674.51(aa)(1). (i) To 
qualify for discharge of a Defense, NDSL, or Perkins loan based on a 
total and permanent disability as defined in Sec.  674.51(aa)(1), a 
borrower must submit a discharge application approved by the Secretary 
to the institution that holds the loan.
    (ii) The application must contain a certification by a physician, 
who is a doctor of medicine or osteopathy legally authorized to 
practice in a State, that the borrower is totally and permanently 
disabled as defined in Sec.  674.51(aa)(1).
    (iii) The borrower must submit the application to the institution 
within 90 days of the date the physician certifies the application.
    (iv) Upon receiving the borrower's complete application, the 
institution must suspend collection activity on the loan and inform the 
borrower that--
    (A) The institution will review the application and assign the loan 
to the Secretary for an eligibility determination if the institution 
determines that the certification supports the conclusion that the 
borrower is totally and permanently disabled, as defined in Sec.  
674.51(aa)(1);
    (B) The institution will resume collection on the loan if the 
institution determines that the certification does not support the 
conclusion that the borrower is totally and permanently disabled; and
    (C) If the Secretary discharges the loan based on a determination 
that the borrower is totally and permanently disabled, as defined in 
Sec.  674.51(aa)(1), the Secretary will reinstate the borrower's 
obligation to repay the loan if, within three years after the date the 
Secretary granted the discharge, the borrower--
    (1) Has annual earnings from employment that exceed 100 percent of 
the poverty guideline for a family of two, as published annually by the 
United States Department of Health and Human Services pursuant to 42 
U.S.C. 9902(2);
    (2) Receives a new TEACH Grant or a new loan under the Perkins, 
FFEL, or Direct Loan programs, except for a FFEL or Direct 
Consolidation Loan that includes loans that were not discharged; or
    (3) Fails to ensure that the full amount of any disbursement of a 
Title IV loan or TEACH Grant received prior to the discharge date that 
is made during the three-year period following the discharge date is 
returned to the loan holder or to the Secretary, as applicable, within 
120 days of the disbursement date.
    (v) If, after reviewing the borrower's application, the institution 
determines that the application is complete and supports the conclusion 
that the borrower is totally and permanently disabled as defined in 
Sec.  674.51(aa)(1), the institution must assign the loan to the 
Secretary.
    (vi) At the time the loan is assigned to the Secretary, the 
institution must notify the borrower that the loan has been assigned to 
the Secretary for determination of eligibility for a total and 
permanent disability discharge and that no payments are due on the 
loan.
    (3) Secretary's eligibility determination. (i) If the Secretary 
determines that the borrower is totally and permanently disabled as 
defined in Sec.  674.51(aa)(1), the Secretary discharges the borrower's 
obligation to make further payments on the loan and notifies the 
borrower that the loan has been discharged. The notification to the 
borrower explains the terms and conditions under which the borrower's 
obligation to repay the loan will be reinstated, as specified in 
paragraph (b)(5) of this section.
    (ii) If the Secretary determines that the certification provided by 
the borrower does not support the conclusion that the borrower is 
totally and permanently disabled as defined in Sec.  674.51(aa)(1), the 
Secretary notifies the borrower that the application for a disability 
discharge has been denied, and that the loan is due and payable to the 
Secretary under the terms of the promissory note.
    (iii) The Secretary reserves the right to require the borrower to 
submit additional medical evidence if the Secretary determines that the 
borrower's application does not conclusively prove that the borrower is 
totally and permanently disabled as defined in Sec.  674.51(aa)(1). As 
part of the Secretary's review of the borrower's discharge application, 
the Secretary may arrange for an additional review of the borrower's 
condition by an independent physician at no expense to the borrower.
    (4) Treatment of disbursements made during the period from the date 
of the physician's certification until the date of discharge. If a 
borrower received a Title IV loan or TEACH Grant prior to the date the 
physician certified the borrower's discharge application and a 
disbursement of that loan or grant is made during the period from the 
date of the physician's certification until the date the Secretary 
grants a discharge under this section, 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.
    (5) Conditions for reinstatement of a loan after a total and 
permanent disability discharge. (i) The Secretary reinstates a 
borrower's obligation to repay a loan that was discharged in accordance 
with paragraph (b)(3)(i) of this section if, within three years after 
the date the Secretary granted the discharge, the borrower--
    (A) Has annual earnings from employment that exceed 100 percent of 
the poverty guideline for a family of two, as published annually by the 
United States Department of Health and Human Services pursuant to 42 
U.S.C. 9902(2);
    (B) Receives a new TEACH Grant or a new loan under the Perkins, 
FFEL or Direct Loan programs, except for a FFEL or Direct Consolidation 
Loan that includes loans that were not discharged; or
    (C) Fails to ensure that the full amount of any disbursement of a 
Title IV loan or TEACH Grant received prior

[[Page 55988]]

to the discharge date that is made during the three-year period 
following the discharge date is returned to the loan holder or to the 
Secretary, as applicable, within 120 days of the disbursement date.
    (ii) If a borrower's obligation to repay a loan is reinstated, the 
Secretary--
    (A) Notifies the borrower that the borrower's obligation to repay 
the loan has been reinstated; and
    (B) Does not require the borrower to pay interest on the loan for 
the period from the date the loan was discharged until the date the 
borrower's obligation to repay the loan was reinstated.
    (iii) The Secretary's notification under paragraph (b)(5)(ii)(A) of 
this section will include--
    (A) The reason or reasons for the reinstatement;
    (B) 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
    (C) Information on how the borrower may contact the Secretary if 
the borrower has questions about the reinstatement or believes that the 
obligation to repay the loan was reinstated based on incorrect 
information.
    (6) Borrower's responsibilities after a total and permanent 
disability discharge. During the three-year period described in 
paragraph (b)(5)(i) of this section, the borrower or, if applicable, 
the borrower's representative--
    (i) Must promptly notify the Secretary of any changes in address or 
phone number;
    (ii) Must promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(b)(5)(i)(A) of this section; and
    (iii) Must provide the Secretary, upon request, with documentation 
of the borrower's annual earnings from employment.
    (7) Payments received after the physician's certification of total 
and permanent disability. (i) If, after the date the physician 
certifies the borrower's loan discharge application, the institution 
receives any payments from or on behalf of the borrower on or 
attributable to a loan that was assigned to the Secretary for 
determination of eligibility for a total and permanent disability 
discharge, the institution must forward those payments to the Secretary 
for crediting to the borrower's account.
    (ii) At the same time that the institution forwards the payment, it 
must notify the borrower that there is no obligation to make payments 
on the loan prior to the Secretary's determination of eligibility for a 
total and permanent disability discharge, unless the Secretary directs 
the borrower otherwise.
    (iii) When the Secretary makes a determination to discharge the 
loan, the Secretary returns any payments received on the loan after the 
date the physician certified the borrower's loan discharge application 
to the person who made the payments on the loan.
    (c) Total and permanent disability discharges for veterans--(1) 
General. A veteran's Defense, NDSL, or Perkins loan will be discharged 
if the veteran is totally and permanently disabled, as defined in Sec.  
674.51(aa)(2).
    (2) Discharge application process for veterans who have a total and 
permanent disability as defined in Sec.  674.51(aa)(2). (i) To qualify 
for discharge of a Defense, NDSL, or Perkins loan based on a total and 
permanent disability as defined in Sec.  674.51(aa)(2), a veteran must 
submit a discharge application approved by the Secretary to the 
institution that holds the loan.
    (ii) With the application, the veteran must submit documentation 
from the Department of Veterans Affairs showing that the Department of 
Veterans Affairs has determined that the veteran is unemployable due to 
a service-connected disability. The veteran will not be required to 
provide any additional documentation related to the veteran's 
disability.
    (iii) Upon receiving the veteran's completed application and the 
required documentation from the Department of Veterans Affairs, the 
institution must suspend collection activity on the loan and inform the 
veteran that--
    (A) The institution will review the application and submit the 
application and supporting documentation to the Secretary for an 
eligibility determination if the documentation from the Department of 
Veterans Affairs indicates that the veteran is totally and permanently 
disabled as defined in Sec.  674.51(aa)(2);
    (B) The institution will resume collection on the loan if the 
documentation from the Department of Veterans Affairs does not indicate 
that the veteran is totally and permanently disabled as defined in 
Sec.  674.51(aa)(2); and
    (C) If the documentation from the Department of Veterans Affairs 
does not indicate that the veteran is totally and permanently disabled 
as defined in Sec.  674.51(aa)(2), but the documentation indicates that 
the veteran may be totally and permanently disabled as defined in Sec.  
674.51(aa)(1), the veteran may reapply for a total and permanent 
disability discharge in accordance with the procedures described in 
Sec.  674.61(b).
    (iv) If the documentation from the Department of Veterans Affairs 
indicates that the veteran is totally and permanently disabled as 
defined in Sec.  674.51(aa)(2), the institution must submit a copy of 
the veteran's application and the documentation from the Department of 
Veterans Affairs to the Secretary. At the time the application and 
documentation are submitted to the Secretary, the institution must 
notify the veteran that the veteran's discharge request has been 
referred to the Secretary for determination of discharge eligibility 
and that no payments are due on the loan.
    (v) If the documentation from the Department of Veterans Affairs 
does not indicate that the veteran is totally and permanently disabled 
as defined in Sec.  674.51(aa)(2), the institution must resume 
collection on the loan.
    (3) Secretary's determination of eligibility. (i) If the Secretary 
determines, based on a review of the documentation from the Department 
of Veterans Affairs, that the veteran is totally and permanently 
disabled as defined in Sec.  674.51(aa)(2), the Secretary notifies the 
institution of this determination, and the institution must--
    (A) Discharge the veteran's obligation to make further payments on 
the loan; and
    (B) Return to the person who made the payments on the loan any 
payments received on or after the effective date of the determination 
by the Department of Veterans Affairs that the veteran is unemployable 
due to a service-connected disability.
    (ii) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is not totally and permanently disabled as defined in Sec.  
674.51(aa)(2), the Secretary notifies the institution of this 
determination, and the institution must resume collection on the loan.
* * * * *

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

0
7. The authority citation for part 682 continues to read as follows:

    Authority: 20 U.S.C. 1071 to 1087-2 unless otherwise noted.

0
8. Section 682.200(b) is amended by:
0
A. In the definition of ``Estimated financial assistance,'' revising 
paragraphs (1)(i) and (ii).
0
B. In the definition of ``Estimated financial assistance,'' removing

[[Page 55989]]

paragraphs (1)(iii) and (iv), and redesignating paragraphs (1)(v), 
(vi), (vii), and (viii) as paragraphs (1)(iii), (iv), (v), and (vi), 
respectively.
0
C. In paragraph (2)(i) of the definition of ``Estimated financial 
assistance,'' removing the word ``is'' in the second sentence and 
adding, in its place, the words ``must be''.
0
D. In paragraph (2)(iii) of the definition of ``Estimated financial 
assistance,'' removing the words ``veterans' educational benefits paid 
under chapter 30 of title 38 of the United States Code (Montgomery GI 
Bill--Active Duty) and''.
0
E. In paragraph (2)(v) of the definition of ``Estimated financial 
assistance,'' removing the word ``and'' after the semicolon at the end 
of the paragraph.
0
F. In paragraph (2)(vi) of the definition of ``Estimated financial 
assistance,'' removing the words ``this title'' in the first sentence 
and adding, in their place, the words ``a title IV, HEA program'', and 
removing the punctuation ``.'' at the end of the paragraph and adding, 
in its place, the punctuation ``;''.
0
G. In the definition of ``Estimated financial assistance,'' adding new 
paragraphs (2)(vii) and (viii).
0
H. Revising paragraph (5) of the definition of ``Lender.''
0
I. Removing the definition of ``National credit bureau.''
0
J. Adding a definition of ``Nationwide consumer reporting agency.''
0
K. Adding a definition of ``Substantial gainful activity.''
0
L. Revising the definition of ``Totally and permanently disabled.''
    The revisions and additions read as follows:


Sec.  682.200  Definitions.

* * * * *
    (b) * * *
    Estimated financial assistance. (1) * * *
    (i) Except as provided in paragraph (2)(iii) of this definition, 
national service education awards or post-service benefits under title 
I of the National and Community Service Act of 1990 (AmeriCorps);
    (ii) Except as provided in paragraph (2)(vii) of this definition, 
veterans' education benefits;
* * * * *
    (2) * * *
    (vii) Federal veterans' education benefits paid under--
    (A) Chapter 103 of title 10, United States Code (Senior Reserve 
Officers' Training Corps);
    (B) Chapter 106A of title 10, United States Code (Educational 
Assistance for Persons Enlisting for Active Duty);
    (C) Chapter 1606 of title 10, United States Code (Selected Reserve 
Educational Assistance Program);
    (D) Chapter 1607 of title 10, United States Code (Educational 
Assistance Program for Reserve Component Members Supporting Contingency 
Operations and Certain Other Operations);
    (E) Chapter 30 of title 38, United States Code (All-Volunteer Force 
Educational Assistance Program, also known as the ``Montgomery GI 
Bill--active duty'');
    (F) Chapter 31 of title 38, United States Code (Training and 
Rehabilitation for Veterans with Service-Connected Disabilities);
    (G) Chapter 32 of title 38, United States Code (Post-Vietnam Era 
Veterans' Educational Assistance Program);
    (H) Chapter 33 of title 38, United States Code (Post 9/11 
Educational Assistance);
    (I) Chapter 35 of title 38, United States Code (Survivors' and 
Dependents' Educational Assistance Program);
    (J) Section 903 of the Department of Defense Authorization Act, 
1981 (10 U.S.C. 2141 note) (Educational Assistance Pilot Program);
    (K) Section 156(b) of the ``Joint Resolution making further 
continuing appropriations and providing for productive employment for 
the fiscal year 1983, and for other purposes'' (42 U.S.C. 402 note) 
(Restored Entitlement Program for Survivors, also known as ``Quayle 
benefits'');
    (L) The provisions of chapter 3 of title 37, United States Code, 
related to subsistence allowances for members of the Reserve Officers 
Training Corps; and
    (M) Any program that the Secretary may determine is covered by 
section 480(c)(2) of the HEA; and
    (viii) Iraq and Afghanistan Service Grants made under section 420R 
of the HEA.
* * * * *
    Lender. * * *
    (5)(i) The term eligible lender does not include any lender that 
the Secretary determines, after notice and opportunity for a hearing 
before a designated Department official, has, directly or through an 
agent or contractor--
    (A) Except as provided in paragraph (5)(ii) of this definition, 
offered, directly or indirectly, points, premiums, payments (including 
payments for referrals, finder fees or processing fees), or other 
inducements to any school, any employee of a school, or any individual 
or entity in order to secure applications for FFEL loans or FFEL loan 
volume. This includes but is not limited to--
    (1) Payments or offerings of other benefits, including prizes or 
additional financial aid funds, to a prospective borrower or to a 
school or school employee in exchange for applying for or accepting a 
FFEL loan from the lender;
    (2) Payments or other benefits, including payments of stock or 
other securities, tuition payments or reimbursements, to a school, a 
school employee, any school-affiliated organization, or to any other 
individual in exchange for FFEL loan applications, application 
referrals, or a specified volume or dollar amount of loans made, or 
placement on a school's list of recommended or suggested lenders;
    (3) Payments or other benefits provided to a student at a school 
who acts as the lender's representative to secure FFEL loan 
applications from individual prospective borrowers, unless the student 
is also employed by the lender for other purposes and discloses that 
employment to school administrators and to prospective borrowers;
    (4) Payments or other benefits to a loan solicitor or sales 
representative of a lender who visits schools to solicit individual 
prospective borrowers to apply for FFEL loans from the lender;
    (5) Payment to another lender or any other party, including a 
school, a school employee, or a school-affiliated organization or its 
employees, of referral fees, finder fees or processing fees, except 
those processing fees necessary to comply with Federal or State law;
    (6) Compensation to an employee of a school's financial aid office 
or other employee who has responsibilities with respect to student 
loans or other financial aid provided by the school or compensation to 
a school-affiliated organization or its employees, to serve on a 
lender's advisory board, commission or other group established by the 
lender, except that the lender may reimburse the employee for 
reasonable expenses incurred in providing the service;
    (7) Payment of conference or training registration, travel, and 
lodging costs for an employee of a school or school-affiliated 
organization;
    (8) Payment of entertainment expenses, including expenses for 
private hospitality suites, tickets to shows or sporting events, meals, 
alcoholic beverages, and any lodging, rental, transportation, and other 
gratuities related to lender-sponsored activities for employees of a 
school or a school-affiliated organization;
    (9) Philanthropic activities, including providing scholarships, 
grants, restricted gifts, or financial contributions in exchange for 
FFEL loan applications or application referrals, or

[[Page 55990]]

a specified volume or dollar amount of FFEL loans made, or placement on 
a school's list of recommended or suggested lenders;
    (10) Performance of, or payment to another third party to perform, 
any school function required under title IV, except that the lender may 
perform entrance counseling as provided in Sec.  682.604(f) and exit 
counseling as provided in Sec.  682.604(g), and may provide services to 
participating foreign schools at the direction of the Secretary, as a 
third-party servicer; and
    (11) Any type of consulting arrangement or other contract with an 
employee of a financial aid office at a school, or an employee of a 
school who otherwise has responsibilities with respect to student loans 
or other financial aid provided by the school under which the employee 
would provide services to the lender.
    (B) Conducted unsolicited mailings, by postal or electronic means, 
of student loan application forms to students enrolled in secondary 
schools or postsecondary institutions or to family members of such 
students, except to a student or borrower who previously has received a 
FFEL loan from the lender;
    (C) Offered, directly or indirectly, a FFEL loan to a prospective 
borrower to induce the purchase of a policy of insurance or other 
product or service by the borrower or other person; or
    (D) Engaged in fraudulent or misleading advertising with respect to 
its FFEL loan activities.
    (ii) Notwithstanding paragraph (5)(i) of this definition, a lender, 
in carrying out its role in the FFEL program and in attempting to 
provide better service, may provide--
    (A) Technical assistance to a school that is comparable to the 
kinds of technical assistance provided to a school by the Secretary 
under the Direct Loan program, as identified by the Secretary in a 
public announcement, such as a notice in the Federal Register;
    (B) Support of and participation in a school's or a guaranty 
agency's student aid and financial literacy-related outreach 
activities, including in-person entrance and exit counseling, as long 
as the name of the entity that developed and paid for any materials is 
provided to the participants and the lender does not promote its 
student loan or other products;
    (C) Meals, refreshments, and receptions that are reasonable in cost 
and scheduled in conjunction with training, meeting, or conference 
events if those meals, refreshments, or receptions are open to all 
training, meeting, or conference attendees;
    (D) Toll-free telephone numbers for use by schools or others to 
obtain information about FFEL loans and free data transmission service 
for use by schools to electronically submit applicant loan processing 
information or student status confirmation data;
    (E) A reduced origination fee in accordance with Sec.  682.202(c);
    (F) A reduced interest rate as provided under the Act;
    (G) Payment of Federal default fees in accordance with the Act;
    (H) Purchase of a loan made by another lender at a premium;
    (I) Other benefits to a borrower under a repayment incentive 
program that requires, at a minimum, one or more scheduled payments to 
receive or retain the benefit or under a loan forgiveness program for 
public service or other targeted purposes approved by the Secretary, 
provided these benefits are not marketed to secure loan applications or 
loan guarantees;
    (J) Items of nominal value to schools, school-affiliated 
organizations, and borrowers that are offered as a form of generalized 
marketing or advertising, or to create good will; and
    (K) Other services as identified and approved by the Secretary 
through a public announcement, such as a notice in the Federal 
Register.
    (iii) For the purposes of this paragraph (5)--
    (A) The term ``school-affiliated organization'' is defined in Sec.  
682.200.
    (B) The term ``applications'' includes the Free Application for 
Federal Student Aid (FAFSA), FFEL loan master promissory notes, and 
FFEL Consolidation loan application and promissory notes.
    (C) The term ``other benefits'' includes, but is not limited to, 
preferential rates for or access to the lender's other financial 
products, information technology equipment, or non-loan processing or 
non-financial aid-related computer software at below market rental or 
purchase cost, and printing and distribution of college catalogs and 
other materials at reduced or no cost.
* * * * *
    Nationwide consumer reporting agency. A consumer reporting agency 
as defined in 15 U.S.C. 1681a.
* * * * *
    Substantial gainful activity. A level of work performed for pay or 
profit that involves doing significant physical or mental activities, 
or a combination of both.
* * * * *
    Totally and permanently disabled. 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--
    (i) Can be expected to result in death;
    (ii) Has lasted for a continuous period of not less than 60 months; 
or
    (iii) Can be expected to last for a continuous period of not less 
than 60 months; or
    (2) Has been determined by the Secretary of Veterans Affairs to be 
unemployable due to a service-connected disability.
* * * * *

0
9. Section 682.201 is amended by:
0
A. In paragraph (a)(4)(i), removing the words ``legal costs, and late 
charges'' and adding, in their place, the words ``court costs, attorney 
fees, and late charges''.
0
B. In paragraph (a)(5), removing the words ``under Sec.  682.402(c)''.
0
C. In the introductory text of paragraph (a)(6), adding the words ``or 
whose TEACH Grant service obligation'' immediately after the word 
``Act''.
0
D. Revising paragraph (a)(6)(iii).
0
E. In the introductory text of paragraph (a)(7), removing the words 
``based on'' and adding, in their place, the word ``after'', and adding 
the words ``based on a discharge request received prior to July 1, 
2010'' immediately after the word ``disabled''.
0
F. In paragraph (a)(7)(ii)(B), removing the words ``, as described in 
paragraph 682.402(c)(16)''.
0
G. In paragraph (d)(1)(i)(A)(3), adding the words ``or the income-based 
repayment plan described in Sec.  682.215'' immediately after the 
reference ``Sec.  682.209(a)(6)(iii)''.
0
H. In paragraph (e)(4), adding the words ``is in default or'' 
immediately after the first appearance of the words ``consolidation 
loan'' and adding the words ``or an income-based repayment plan'' 
immediately after the words ``income contingent repayment plan''.
0
I. Revising paragraph (e)(5).
    The revisions read as follows:


Sec.  682.201  Eligible borrowers.

    (a) * * *
    (6) * * *
    (iii) If a borrower receives a new FFEL loan, other than a Federal 
Consolidation Loan, within three years of the date that any previous 
title IV loan or TEACH Grant service obligation was discharged due to a 
total and permanent disability in accordance with Sec.  
682.402(c)(3)(ii), 34 CFR 674.61(b)(3)(i), 34 CFR 685.213, or 34 CFR 
686.42(b) based on a discharge request received on or after July 1, 
2010, resume repayment on the previously discharged loan in

[[Page 55991]]

accordance with Sec.  682.402(c)(5), 34 CFR 674.61(b)(5), or 34 CFR 
685.213(b)(4), or acknowledge that he or she is once again subject to 
the terms of the TEACH Grant agreement to serve before receiving the 
new loan.
* * * * *
    (e) * * *
    (5) A FFEL borrower may consolidate his or her loans (including a 
FFEL Consolidation Loan) into the Federal Direct Consolidation Loan 
Program for the purpose of using--
    (i) The Public Service Loan Forgiveness Program; or
    (ii) For FFEL Program loans first disbursed on or after October 1, 
2008 (including Federal Consolidation Loans that repaid FFEL or Direct 
Loan program Loans first disbursed on or after October 1, 2008), the no 
accrual of interest benefit for active duty service members.

0
10. Section 682.202 is amended by:
0
A. In the introductory text of paragraph (a), adding the words ``and 
(a)(8)'' after the reference ``(a)(4)''.
0
B. Adding a new paragraph (a)(8).
0
C. In paragraph (b)(2)(i), adding the words ``or, for a PLUS loan, for 
the period from the date the first disbursement was made to the date 
the repayment period begins'' immediately before the semicolon.
    The addition reads as follows:


Sec.  682.202  Permissible charges by lenders to borrowers.

* * * * *
    (a) * * *
    (8) Applicability of the Servicemembers Civil Relief Act (50 U.S.C 
527, App. sec. 207). Notwithstanding paragraphs (a)(1) through (a)(4) 
of this section, effective August 14, 2008, upon the loan holder's 
receipt of the borrower's written request and a copy of the borrower's 
military orders, the maximum interest rate, as defined in 50 U.S.C. 
527, App. section 207(d), on FFEL Program loans made prior to the 
borrower entering active duty status is 6 percent while the borrower is 
on active duty military service.
* * * * *

0
11. Section 682.204 is amended by:
0
A. Revising paragraph (c)(1).
0
B. Revising paragraph (d) introductory text.
0
C. In paragraph (d)(1)(i), adding the words ``, or, for a loan first 
disbursed on or after July 1, 2008, $6,000,'' immediately after 
``$4,000''.
0
D. In paragraph (d)(1)(ii), adding the words ``, or, for a loan first 
disbursed on or after July 1, 2008, $6,000,'' immediately after 
``$4,000''.
0
E. In paragraph (d)(1)(iii), adding the words ``, or, for a loan first 
disbursed on or after July 1, 2008, $6,000,'' immediately after 
``$4,000''.
0
F. In paragraph (d)(2)(i), adding the words ``, or, for a loan first 
disbursed on or after July 1, 2008, $6,000,'' immediately after 
``$4,000''.
0
G. In paragraph (d)(2)(ii), adding the words ``, or, for a loan first 
disbursed on or after July 1, 2008, $6,000,'' immediately after 
``$,4000''.
0
H. In paragraph (d)(3)(i), adding the words ``, or, for a loan first 
disbursed on or after July 1, 2008, $7,000,'' immediately after 
``$5,000''.
0
I. In paragraph (d)(3)(ii), adding the words ``, or, for a loan first 
disbursed on or after July 1, 2008, $7,000,'' immediately after 
``$5,000''.
0
J. In paragraph (d)(6)(i), adding the words ``, or, for a loan first 
disbursed on or after July 1, 2008, $6,000,'' immediately after 
``$4,000''.
0
K. Adding a new paragraph (d)(9).
0
L. Redesignating paragraphs (e)(1) and (e)(2) as paragraphs (e)(2) and 
(e)(3), respectively.
0
M. Adding a new paragraph (e)(1).
0
N. Revising newly redesignated paragraph (e)(2).
    The revisions and additions read as follows:


Sec.  682.204  Maximum loan amounts.

* * * * *
    (c) Unsubsidized Stafford Loan Program. (1) In the case of a 
dependent undergraduate student--
    (i) For a loan first disbursed before July 1, 2008, the total 
amount the student may borrow for any period of study under the 
Unsubsidized Stafford Loan Program in combination with the Federal 
Direct Unsubsidized Stafford/Ford Loan Program is the same as the 
amount determined under paragraph (a) of this section, less any amount 
received under the Stafford Loan Program or the Federal Direct 
Stafford/Ford Loan Program.
    (ii) Except for a dependent undergraduate who qualifies for 
additional Unsubsidized Stafford Loan funds under paragraph (d) of this 
section in accordance with the conditions specified in Sec.  
682.201(a)(3), for a loan first disbursed on or after July 1, 2008, the 
total amount the student may borrow for any period of study under the 
Unsubsidized Stafford Loan Program in combination with the Federal 
Direct Unsubsidized Stafford/Ford Loan Program is the same as the 
amount determined under paragraph (a) of this section, less any amount 
received under the Stafford Loan Program or the Federal Direct 
Stafford/Ford Loan Program, plus--
    (A) $2,000, for a program of study of at least a full academic year 
in length.
    (B) For a program of study that is at one academic year or more in 
length with less than a full academic year remaining, the amount that 
is the same ratio to $2,000 as the--
[GRAPHIC] [TIFF OMITTED] TR29OC09.000

    (C) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $2,000 as the lesser of 
the--
[GRAPHIC] [TIFF OMITTED] TR29OC09.001


[[Page 55992]]



or
[GRAPHIC] [TIFF OMITTED] TR29OC09.002

* * * * *
    (d) Additional eligibility under the Unsubsidized Stafford Loan 
Program. An independent undergraduate student, graduate or professional 
student, and certain dependent undergraduate students under the 
conditions specified in Sec.  682.201(a)(3) may borrow additional 
amounts under the Unsubsidized Stafford Loan Program in addition to any 
amount borrowed under paragraphs (a) and (c) of this section, except as 
provided in paragraph (d)(9) of this section. The additional amount 
that such a student may borrow for any academic year of study under the 
Unsubsidized Stafford Loan Program in combination with the Federal 
Direct Unsubsidized Stafford/Ford Loan Program, in addition to the 
amounts allowed under paragraphs (a) and (c) of this section, except as 
provided in paragraph (d)(9) of this section for certain dependent 
undergraduate students--
* * * * *
    (9) A dependent undergraduate student who qualifies for the 
additional Unsubsidized Stafford Loan amounts under this section in 
accordance with the conditions specified in Sec.  682.201(a)(3) is not 
eligible to receive the additional Unsubsidized Stafford Loan amounts 
under paragraph (c)(1)(ii) of this section.
    (e) * * *
    (1) $23,000, or, effective July 1, 2008, $31,000, for a dependent 
undergraduate student.
    (2) $46,000, or, effective July 1, 2008, $57,500, for an 
independent undergraduate student or a dependent undergraduate student 
under the conditions specified in Sec.  682.201(a)(3).
* * * * *

0
12. Section 682.205 is amended by:
0
A. In paragraph (a)(2)(vi), removing the words ``insurance premium'' 
and adding, in their place, the words ``Federal default fee'', and 
adding, immediately before the semicolon, the words ``or paid by the 
lender''.
0
B. In paragraph (a)(2)(ix), removing the words ``a national credit 
bureau'' and adding, in their place, the words ``each nationwide 
consumer reporting agency''.
0
C. In paragraph (a)(2)(x), adding, immediately before the semicolon, 
the words ``, and a description of the types of repayment plans 
available''.
0
D. In paragraph (a)(2)(xvi), removing the words ``a national credit 
bureau'' and adding, in their place, the words ``each nationwide 
consumer reporting agency''.
0
E. In paragraph (a)(2)(xviii), removing the words ``in the making or'' 
and adding, in their place, the words ``during repayment or in the''; 
adding the words ``including any fees the borrower may be charged'' 
immediately after the words ``the loan''; and removing the words ``; 
and'' at the end of the paragraph and adding, in their place, the 
punctuation ``;''.
0
F. In paragraph (a)(2)(xx), removing the punctuation ``.'' at the end 
of the paragraph and adding, in its place, the punctuation ``;''.
0
G. Adding new paragraphs (a)(2)(xxi), (a)(2)(xxii), (a)(2)(xxiii), and 
(a)(2)(xxiv).
0
H. In paragraph (b), in the second sentence, adding the words ``, and 
that the default will be reported to each nationwide consumer reporting 
agency'' immediately after the word ``loan''.
0
I. In paragraph (c), in the heading, removing the words ``Disclosure of 
repayment'' and adding, in their place, the word ``Repayment''.
0
J. In paragraph (c)(1), adding the heading ``Disclosures at or prior to 
repayment.'' immediately after the paragraph designation ``(1)''; 
removing the words ``Federal SLS'' and adding, in their place, the 
words ``Federal PLUS''; and removing the words ``240 days'' and adding, 
in their place, the words ``150 days''.
0
K. In paragraph (c)(2)(ii), adding the words ``, or a deferment under 
Sec.  682.210(v), if applicable, is to end'' immediately after the word 
``begin'' at the end of the sentence.
0
L. In paragraph (c)(2)(iii), adding the words ``a deferment under Sec.  
682.210(v), if applicable, is to end,'' immediately after the words 
``begin''.
0
M. In paragraph (c)(2)(vi), adding the words ``based on the repayment 
schedule selected by the borrower'' immediately after the word 
``payments''.
0
N. In paragraph (c)(2)(viii), removing the words ``; and'' and adding, 
in their place, the words ``, and if interest has been paid, the amount 
of interest paid;''.
0
O. In paragraph (c)(2)(ix), removing the punctuation ``.'' at the end 
of the sentence and adding, in its place, the punctuation ``;''.
0
P. Adding new paragraphs (c)(2)(x), (c)(2)(xi), (c)(2)(xii), 
(c)(2)(xiii) and (c)(2)(xiv).
0
Q. Adding new paragraphs (c)(3), (c)(4) and (c)(5).
0
R. In paragraph (d), adding the words ``Federal Unsubsidized Stafford 
loan or a'' immediately after the words ``In the case of a'' at the 
beginning of the first sentence; removing the words ``the student'' in 
the first sentence and adding, in their place, the words ``the borrower 
or student on whose behalf the loan is made''; and removing the words 
``PLUS promissory note'' in the last sentence and adding, in their 
place, the words ``Stafford and PLUS promissory notes''.
0
S. Adding new paragraph (i).
0
T. Adding new paragraph (j).
    The additions read as follows:


Sec.  682.205  Disclosure requirements for lenders.

    (a) * * *
    (2) * * *
    (xxi) For unsubsidized Stafford or student PLUS borrowers, an 
explanation that the borrower may pay the interest while in school and, 
if the interest is not paid by the borrower while in school, when and 
how often the interest will be capitalized;
    (xxii) For parent PLUS borrowers, an explanation that the parent 
may defer payment on the loan while the student on whose behalf the 
parent borrowed is enrolled at least half-time and, if the parent does 
not pay interest while the student is in school, when and how often 
interest will be capitalized, and that the parent may be eligible for a 
deferment on the loan if the parent is enrolled at least half-time;
    (xxiii) A statement summarizing the circumstances in which a 
borrower may obtain forbearance on the loan; and
    (xxiv) A description of the options available for forgiveness of 
the loan and the requirements to obtain that forgiveness.
* * * * *
    (c) * * *
    (2) * * *
    (x) Information on any special loan repayment benefits offered on 
the loan, including benefits that are contingent on repayment behavior, 
and any other special loan repayment benefits for which the borrower 
may be eligible that would reduce the amount or length of repayment; 
and at the request of the borrower, an explanation of the effect of a 
reduced interest rate on the borrower's total payoff amount and time 
for repayment;
    (xi) If the lender provides a repayment benefit, any limitations on 
that benefit, any circumstances in which the borrower could lose that 
benefit, and whether and how the borrower may regain eligibility for 
the repayment benefit;
    (xii) A description of all the repayment plans available to the 
borrower and a statement that the borrower may change plans during the 
repayment period at least annually;
    (xiii) A description of the options available to the borrower to 
avoid or be

[[Page 55993]]

removed from default, as well as any fees associated with those 
options; and
    (xiv) Any additional resources, including nonprofit organizations, 
advocates and counselors, including the Department of Education's 
Student Loan Ombudsman, the lender is aware of where the borrower may 
obtain additional advice and assistance on loan repayment.
    (3) Required disclosures during repayment. In addition to the 
disclosures required in paragraph (c)(1) of this section, the lender 
must provide the borrower of a FFEL loan with a bill or statement that 
corresponds to each payment installment time period in which a payment 
is due that includes in simple and understandable terms--
    (i) The original principal amount of the borrower's loan;
    (ii) The borrower's current balance, as of the time of the bill or 
statement;
    (iii) The interest rate on the loan;
    (iv) The total amount of interest for the preceding installment 
paid by the borrower;
    (v) The aggregate amount paid by the borrower on the loan, and 
separately identifying the amount the borrower has paid in interest on 
the loan, the amount of fees the borrower has paid on the loan, and the 
amount paid against the balance in principal;
    (vi) A description of each fee the borrower has been charged for 
the most recent preceding installment time period;
    (vii) The date by which a payment must be made to avoid additional 
fees and the amount of that payment and the fees;
    (viii) The lender's or servicer's address and toll-free telephone 
number for repayment options, payments and billing error purposes; and
    (ix) A reminder that the borrower may change repayment plans, a 
list of all of the repayment plans that are available to the borrower, 
a link to the Department of Education's Web site for repayment plan 
information, and directions on how the borrower may request a change in 
repayment plans from the lender.
    (4) Required disclosures for borrowers having difficulty making 
payments. The lender shall provide a borrower who has notified the 
lender that he or she is having difficulty making payments with--
    (i) A description of the repayment plans available to the borrower, 
and how the borrower may request a change in repayment plan;
    (ii) A description of the requirements for obtaining forbearance on 
the loan and any costs associated with forbearance; and
    (iii) A description of the options available to the borrower to 
avoid default and any fees or costs associated with those options.
    (5) Required disclosures for borrowers who are 60-days delinquent 
in making payments on a loan. (i) The lender shall provide to a 
borrower who is 60 days delinquent in making required payments a notice 
of--
    (A) The date on which the loan will default if no payment is made;
    (B) The minimum payment the borrower must make, as of the date of 
the notice, to avoid default, including the payment amount needed to 
bring the loan current or payment in full;
    (C) A description of the options available to the borrower to avoid 
default, including deferment and forbearance and any fees and costs 
associated with those options;
    (D) Any options for discharging the loan that may be available to 
the borrower; and
    (E) Any additional resources, including nonprofit organizations, 
advocates and counselors, including the Department of Education's 
Student Loan Ombudsman, the lender is aware of where the borrower may 
obtain additional advice and assistance on loan repayment.
    (ii) The notice must be sent within five days of the date the 
borrower becomes 60 days delinquent, unless the lender has sent such a 
notice within the previous 120 days.
* * * * *
    (i) Separate disclosure for Consolidation loans. At the time the 
lender provides a Consolidation loan application to a prospective 
borrower, it must disclose to the prospective borrower, in simple and 
understandable terms--
    (1) Whether consolidation will result in a loss of loan benefits, 
including, but not limited to, loan forgiveness, cancellation, 
deferment, or a reduced interest rate on FFEL or Direct Loans repaid 
through consolidation;
    (2) If a borrower is repaying a Federal Perkins Loan with the 
Consolidation loan, that the borrower will lose--
    (i) The interest-free periods available on the Perkins Loan while 
the borrower is enrolled in-school at least half-time, in the grace 
period, or in a deferment period; and
    (ii) The cancellation benefits on the Perkins Loan. The lender must 
provide to the borrower a list of the Perkins Loan cancellation 
benefits that would not be available on the Consolidation loan.
    (3) The repayment plans available to the borrower;
    (4) The borrower's options to prepay the Consolidation loan, to pay 
the loan on a shorter repayment schedule, and to change repayment 
plans;
    (5) That the borrower benefit programs for a Consolidation loan 
vary among lenders;
    (6) The consequences of default on the Consolidation loan; and
    (7) That applying for the Consolidation loan does not obligate the 
borrower to agree to take the Consolidation loan, and the process and 
deadline by which the borrower may cancel the Consolidation loan.
    (j) Disclosure procedures when a borrower's address is not 
available. If a lender receives information indicating it does not know 
the borrower's current address, the lender is excused from providing 
disclosure information under this section unless it receives 
communication indicating a valid borrower address before the 241st day 
of delinquency, at which point the lender must resume providing the 
installment bill or statement, and any other disclosure information 
required under this section not previously provided.

0
13. Section 682.206 is amended by revising paragraph (f) to read as 
follows:


Sec.  682.206  Due diligence in making a loan.

* * * * *
    (f) Additional requirements for Consolidation loans. (1) Prior to 
making any payments to pay off a loan with the proceeds of a 
Consolidation loan, the lender shall--
    (i) Obtain from the holder of each loan to be consolidated a 
certification with respect to the loan held by the holder that--
    (A) The loan is a legal, valid, and binding obligation of the 
borrower;
    (B) The loan was made and serviced in compliance with applicable 
laws and regulations; and
    (C) In the case of a FFEL loan, that the guarantee on the loan is 
in full force and effect; and
    (ii) Consistent with the requirements of Sec.  682.205(i)(7), 
notify the borrower, upon receipt of all information necessary to make 
the Consolidation loan, of the borrower's option to cancel the 
Consolidation loan, and the deadline by which the borrower must notify 
the lender that he or she wishes to cancel the loan. The lender must 
allow the borrower no less than 10 days from the date of the notice to 
cancel the loan.
    (2) The Consolidation loan lender may rely in good faith on the 
certification provided under paragraph (f)(1)(i) of this section by the 
holder of a loan to be consolidated.

0
14. Section 682.208 is amended by:

[[Page 55994]]

0
A. In paragraph (e)(1) introductory text, adding the words ``or 
transfer of ownership interest'' immediately after the word 
``assignment''.
0
B. In paragraph (e)(1)(iii), removing the word ``and'' after the 
semicolon.
0
C. In paragraph (e)(1)(iv), removing the punctuation ``.'' at the end 
of the paragraph and adding, in its place, the punctuation ``;''.
0
D. Adding new paragraphs (e)(1)(v), (vi), and (vii).
    The additions read as follows:


Sec.  682.208  Due diligence in servicing a loan.

* * * * *
    (e) * * *
    (1) * * *
    (v) The effective date of the assignment or transfer of the loan;
    (vi) The date, if applicable, on which the current loan servicer 
will stop accepting payments; and
    (vii) The date on which the new loan servicer will begin accepting 
payments.
* * * * *


Sec.  682.209  [Amended]

0
15. Section 682.209 is amended in paragraph (a)(2)(v) by removing the 
reference ``(a)(2)(ii)'' and adding, in its place, the reference 
``(a)(2)(i)''.
0
16. Section 682.210 is amended by:
0
A. In paragraph (a)(1)(i), adding the words ``and paragraphs (s) 
through (v)'' after the words ``paragraph (b)''.
0
B. Revising paragraph (a)(3).
0
C. In paragraph (a)(4), removing the words ``paragraphs (c)(1)(ii) and 
(iii)'' and adding, in their place, the words ``paragraphs (c)(1)(ii), 
(iii), and (iv)''.
0
D. In paragraph (c)(1)(ii), removing the word ``or'' at the end of the 
paragraph.
0
E. In paragraph (c)(1)(iii), removing the punctuation ``.'' and adding, 
in its place, ``; or'' at the end of the paragraph.
0
F. Adding a new paragraph (c)(1)(iv).
0
G. Revising paragraph (c)(2).
0
H. In paragraph (c)(3), removing the word ``SSCR'' and adding, in its 
place, the words ``Student Status Confirmation Report''.
0
I. Adding a new paragraph (v).
    The revisions and additions read as follows:


Sec.  682.210  Deferment.

    (a) * * *
    (3)(i) Interest accrues and is paid by--
    (A) The Secretary during the deferment period for a subsidized 
Stafford loan and for all or a portion of a Consolidation loan that 
qualifies for interest benefits under Sec.  682.301; or
    (B) The borrower during the deferment period and, as applicable, 
the post-deferment grace period, on all other loans.
    (ii) A borrower who is responsible for payment of interest during a 
deferment period must be notified by the lender, at or before the time 
the deferment is granted, that the borrower has the option to pay the 
accruing interest or cancel the deferment and continue paying on the 
loan. The lender must also provide information, including an example, 
on the impact of capitalization of accrued, unpaid interest on loan 
principal, and on the total amount of interest to be paid over the life 
of the loan.
* * * * *
    (c) * * *
    (1) * * *
    (iv) The lender confirms a borrower's half-time enrollment status 
through the use of the National Student Loan Data System if requested 
to do so by the school the borrower is attending.
    (2) The lender must notify the borrower that a deferment has been 
granted based on paragraphs (c)(1)(ii), (iii), or (iv) of this section 
and that the borrower has the option to cancel the deferment and 
continue paying on the loan.
* * * * *
    (v) In-school deferments for PLUS loan borrowers with loans first 
disbursed on or after July 1, 2008. (1)(i) A student PLUS borrower is 
entitled to a deferment on 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 on at least a half-time basis at an 
eligible institution.
    (ii) If a lender grants an in-school deferment to a student PLUS 
borrower based on Sec.  682.210(c)(1)(ii), (iii), or (iv), the 
deferment period for a PLUS loan first disbursed on or after July 1, 
2008 includes the 6-month post-enrollment period described in paragraph 
(v)(1)(i) of this section. The notice required by Sec.  682.210(c)(2) 
must inform the borrower that the in-school deferment on a PLUS loan 
first disbursed on or after July 1, 2008 will end six months after the 
day the borrower ceases to be enrolled on at least a half-time basis.
    (2) Upon the request of the borrower, an eligible parent PLUS 
borrower must be granted a deferment on a PLUS loan first disbursed on 
or after July 1, 2008--
    (i) During the period when the student on whose behalf the loan was 
obtained is enrolled at an eligible institution on at least a half-time 
basis; and
    (ii) During the 6-month period that begins on the later of the day 
after the student on whose behalf the loan was obtained 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 borrower ceases to be enrolled 
on at least a half-time basis.

0
17. Section 682.211 is amended by:
0
A. Revising paragraph (e).
0
B. In paragraph (f)(11), removing the word ``or'' at the end of the 
paragraph.
0
C. In paragraph (f)(12), removing the punctuation ``.'' at the end of 
the paragraph and adding, in its place, the punctuation ``;''.
0
D. In paragraph (f)(13), removing the punctuation ``.'' at the end of 
the paragraph and adding, in its place, the punctuation ``;''.
0
E. In paragraph (f)(14), removing the punctuation ``.'' at the end of 
the paragraph and adding, in its place, ``; or''.
0
F. Adding new paragraph (f)(15).
    The revisions and additions read as follows:


Sec.  682.211  Forbearance.

* * * * *
    (e)(1) At the time of granting a borrower or endorser a 
forbearance, the lender must provide the borrower or endorser with 
information to assist the borrower or endorser in understanding the 
impact of capitalization of interest on the loan principal and total 
interest to be paid over the life of the loan; and
    (2) At least once every 180 days during the period of forbearance, 
the lender must contact the borrower or endorser to inform the borrower 
or endorser of--
    (i) The outstanding obligation to repay;
    (ii) The amount of the unpaid principal balance and any unpaid 
interest that has accrued on the loan since the last notice provided to 
the borrower or endorser under this paragraph;
    (iii) The fact that interest will accrue on the loan for the full 
term of the forbearance;
    (iv) The amount of interest that will be capitalized, as of the 
date of the notice, and the date capitalization will occur;
    (v) The option of the borrower or endorser to pay the interest that 
has accrued before the interest is capitalized; and
    (vi) The borrower's or endorser's option to discontinue the 
forbearance at any time.
    (f) * * *
    (15) For PLUS loans first disbursed before July 1, 2008, to align 
repayment with a borrower's PLUS loans that were first disbursed on or 
after July 1, 2008, or with Stafford Loans that are subject to a grace 
period under Sec.  682.209(a)(3). The notice specified in paragraph (f) 
introductory text of this section must

[[Page 55995]]

inform the borrower that the borrower has the option to cancel the 
forbearance and continue paying on the loan.
* * * * *

0
18. Section 682.215 is amended by:
0
A. Revising paragraph (a)(4).
0
B. In paragraph (b)(1), removing the words ``Except as provided under 
paragraph (b)(1)(i), (b)(1)(ii), and (b)(1)(iii) of this section, the'' 
in the second sentence and adding, in their place, the word ``The''.
0
C. In paragraph (b)(1)(i), removing the word ``The'' at the beginning 
of the paragraph and adding, in its place, the words ``Except for 
borrowers provided for in paragraph (b)(1)(ii) of this section, the''.
0
D. Redesignating paragraphs (b)(1)(ii) and (b)(1)(iii) as paragraphs 
(b)(1)(iii) and (b)(1)(iv), respectively.
0
E. Adding a new paragraph (b)(1)(ii).
0
F. In newly redesignated paragraph (b)(1)(iii), removing the words ``or 
(b)(1)(i)'' and adding, in their place, the words ``, (b)(1)(i), or 
(b)(1)(ii)''.
0
G. In newly redesignated paragraph (b)(1)(iv), removing the words ``or 
(b)(1)(i)'' and adding, in their place, the words ``, (b)(1)(i), or 
(b)(1)(ii)''.
0
H. In paragraph (b)(2), removing the words ``(b)(1)(ii) and (iii)'' in 
the second sentence and adding, in their place, the words ``(b)(1)(iii) 
and (iv)''.
    The revision and addition reads as follows:


Sec.  682.215  Income-based repayment plan.

    (a) * * *
    (4) Partial financial hardship means a circumstance in which--
    (i) For an unmarried borrower or a married borrower who files an 
individual Federal tax return, the annual amount due on all of the 
borrower's eligible loans, as calculated under a standard repayment 
plan based on a 10-year repayment period, using the greater of the 
amount due at the time the borrower initially entered repayment or at 
the time the borrower elects the income-based repayment plan, exceeds 
15 percent of the difference between the borrower's AGI and 150 percent 
of the poverty guideline for the borrower's family size; or
    (ii) For a married borrower who files a joint Federal tax return 
with his or her spouse, the annual amount due on all of the borrower's 
eligible loans and, if applicable, the spouse's eligible loans, as 
calculated under a standard repayment plan based on a 10-year repayment 
period, using the greater of the amount due at the time the loans 
initially entered repayment or at the time the borrower or spouse 
elects the income-based repayment plan, exceeds 15 percent of the 
difference between the borrower's and spouse's AGI, and 150 percent of 
the poverty guideline for the borrower's family size.
* * * * *
    (b) * * *
    (1) * * *
    (ii) Both the borrower and the borrower's spouse have eligible 
loans and filed a joint Federal tax return, in which case the loan 
holder determines--
    (A) Each borrower's percentage of the couple's total eligible loan 
debt;
    (B) The adjusted monthly payment for each borrower by multiplying 
the calculated payment by the percentage determined in paragraph 
(b)(1)(ii)(A) of this section; and
    (C) If the borrower's loans are held by multiple holders, the 
borrower's adjusted monthly payment by multiplying the payment 
determined in paragraph (b)(1)(ii)(B) of this section by the percentage 
of the total outstanding principal amount of eligible loans that are 
held by the loan holder;
* * * * *

0
19. Section 682.216 is amended by:
0
A. Revising paragraph (a).
0
B. In paragraph (b), adding, in alphabetical order, a definition of 
Educational service agency.
0
C. Revising the introductory text of paragraph (c)(1).
0
D. In paragraph (c)(1)(ii), adding the words ``or educational service 
agency's'' immediately after the words ``the school's''.
0
E. In paragraph (c)(1)(iii), removing the words ``Bureau of Indian 
Affairs (BIA)'' and adding, in their place, the words ``Bureau of 
Indian Education (BIE)'', and removing the words ``the BIA'' and 
adding, in their place, the words ``the BIE''.
0
F. In paragraph (c)(2), adding the words ``or educational service 
agency'' immediately after the words ``If the school'' at the beginning 
of the paragraph, and removing the words ``the school'' immediately 
after the words ``teaching and''.
0
G. In paragraph (c)(3)(i)(A), removing the words ``in which'' and 
adding, in their place, the words ``or educational service agency 
where''.
0
H. In paragraph (c)(3)(i)(B), removing the words ``in which'' and 
adding, in their place, the words ``or educational service agency 
where''.
0
I. In paragraph (c)(3)(ii)(A), removing the word ``in'' and adding, in 
its place, the word ``at'', and adding the words ``, or taught 
mathematics or science to secondary school students on a full-time 
basis at an eligible educational service agency,'' immediately after 
the words ``secondary school''.
0
J. In paragraph (c)(3)(ii)(B), removing the word ``in'' the first time 
it appears and adding, in its place, the word ``at'', and adding the 
words ``or educational service agency'' immediately after the words 
``secondary school'' the first time they appear.
0
K. Adding a new paragraph (c)(3)(iii).
0
L. In paragraph (c)(4)(i), removing the word ``in'' and adding, in its 
place, the word ``at'', and adding the words ``or educational service 
agency'' immediately after the words ``secondary school'' the first 
time they appear.
0
M. In paragraph (c)(4)(ii)(A), removing the word ``in'' and adding, in 
its place, the word ``at'', and adding the words ``, or taught 
mathematics or science on a full-time basis to secondary school 
students at an eligible educational service agency,'' immediately after 
the words ``secondary school''.
0
N. In paragraph (c)(4)(ii)(B), removing the word ``in'' the first time 
it appears and adding, in its place, the word ``at'', and by adding the 
words ``or educational service agency'' immediately after the words 
``secondary school'' the first time they appear.
0
O. Adding a new paragraph (c)(4)(iii).
0
P. Revising paragraph (c)(9).
0
Q. Revising paragraph (c)(11).
    The revisions and additions read as follows:


Sec.  682.216  Teacher loan forgiveness program.

    (a) General. (1) The teacher loan forgiveness program is intended 
to encourage individuals to enter and continue in the teaching 
profession. For new borrowers, the Secretary repays the amount 
specified in this paragraph on the borrower's subsidized and 
unsubsidized Federal Stafford Loans, Direct Subsidized Loans, Direct 
Unsubsidized Loans, and in certain cases, Federal Consolidation Loans 
or Direct Consolidation Loans. The forgiveness program is only 
available to a borrower who has no outstanding loan balance under the 
FFEL Program or the Direct Loan Program on October 1, 1998 or who has 
no outstanding loan balance on the date he or she obtains a loan after 
October 1, 1998.
    (2)(i) The borrower must have been employed at an eligible 
elementary or secondary school that serves low-income families or by an 
educational service agency that serves low-income families as a full-
time teacher for five consecutive complete academic years. The required 
five years of teaching may include any combination of qualifying 
teaching service at an eligible elementary or secondary school or an 
eligible educational service agency.

[[Page 55996]]

    (ii) Teaching at an eligible elementary or secondary school may be 
counted toward the required five consecutive complete academic years 
only if at least one year of teaching was after the 1997-1998 academic 
year.
    (iii) Teaching at an educational service agency may be counted 
toward the required five consecutive complete academic years only if 
the consecutive five-year period includes qualifying service at an 
eligible educational service agency performed after the 2007-2008 
academic year.
    (3) All borrowers eligible for teacher loan forgiveness may receive 
loan forgiveness of up to a combined total of $5,000 on the borrower's 
eligible FFEL and Direct Loan Program loans.
    (4) A borrower may receive loan forgiveness of up to a combined 
total of $17,500 on the borrower's eligible FFEL and Direct Loan 
Program loans if the borrower was employed for five consecutive years--
    (i) At an eligible secondary school as a highly qualified 
mathematics or science teacher, or at an eligible educational service 
agency as a highly qualified teacher of mathematics or science to 
secondary school students; or
    (ii) At an eligible elementary or secondary school or educational 
service agency as a special education teacher.
    (5) The loan for which the borrower is seeking forgiveness must 
have been made prior to the end of the borrower's fifth year of 
qualifying teaching service.
    (b) * * *
    Educational service agency means a regional public multiservice 
agency authorized by State statute to develop, manage, and provide 
services or programs to local educational agencies, as defined in 
section 9101 of the Elementary and Secondary Education Act of 1965, as 
amended.
* * * * *
    (c) * * *
    (1) A borrower who has been employed at an elementary or secondary 
school or at an educational service agency as a full-time teacher for 
five consecutive complete academic years may obtain loan forgiveness 
under this program if the elementary or secondary school or educational 
service agency--
* * * * *
    (3) * * *
    (iii) Teaching service performed at an eligible educational service 
agency may be counted toward the required five years of teaching only 
if the consecutive five-year period includes qualifying service at an 
eligible educational service agency performed after the 2007-2008 
academic year.
    (4) * * *
    (iii) Teaching service performed at an eligible educational service 
agency may be counted toward the required five years of teaching only 
if the consecutive five-year period includes qualifying service at an 
eligible educational service agency performed after the 2007-2008 
academic year.
* * * * *
    (9) A borrower who was employed as a teacher at more than one 
qualifying school, at more than one qualifying educational service 
agency, or at a combination of both during an academic year and 
demonstrates that the combined teaching was the equivalent of full-
time, as supported by the certification of one or more of the chief 
administrative officers of the schools or educational service agencies 
involved, is considered to have completed one academic year of 
qualifying teaching.
* * * * *
    (11) A borrower may not receive loan forgiveness for the same 
qualifying teaching service under this section if the borrower receives 
a benefit for the same teaching service under--
    (i) Subtitle D of title I of the National and Community Service Act 
of 1990;
    (ii) 34 CFR 685.219; or
    (iii) Section 428K of the Act.
* * * * *

0
20. Section 682.302 is amended by adding a new paragraph (h) to read as 
follows:


Sec.  682.302  Payment of special allowance on FFEL loans.

* * * * *
    (h) Calculation of special allowance payments for loans subject to 
the Servicemembers Civil Relief Act (50 U.S.C. 527, App. sec. 207). For 
FFEL Program loans first disbursed on or after July 1, 2008 that are 
subject to the interest rate limit under the Servicemembers Civil 
Relief Act, special allowance is calculated in accordance with 
paragraphs (c) and (f) of this section, except the applicable interest 
rate for this purpose shall be 6 percent.

0
21. Section 682.305 is amended by:
0
A. Revising paragraph (c)(1).
0
B. In paragraph (c)(2)(v), removing the word ``and'' immediately after 
the semicolon.
0
C. In paragraph (c)(2)(vi), removing the punctuation ``.'' at the end 
of the paragraph and adding, in its place, the words ``; and''.
0
D. Redesignating paragraph (c)(2)(vii) as paragraph (c)(3).
0
E. Adding a new paragraph (c)(2)(vii).
    The revision and addition read as follows:


Sec.  682.305  Procedures for payment of interest benefits and special 
allowance and collection of origination and loan fees.

* * * * *
    (c) Independent audits. (1)(i) A lender originating or holding more 
than $5 million in FFEL loans during its fiscal year must submit an 
independent annual compliance audit for that year, conducted by a 
qualified independent organization or person.
    (ii) Notwithstanding the dollar volume of loans originated or held, 
a school lender under Sec.  682.601 or a lender serving as trustee on 
behalf of a school or a school-affiliated organization for the purpose 
of originating loans must submit an independent annual compliance audit 
for that year, conducted by a qualified independent organization or 
person.
    (iii) The Secretary may, following written notice, suspend the 
payment of interest benefits and special allowance to a lender that 
does not submit its audit within the time period prescribed in 
paragraph (c)(2) of this section.
    (2) * * *
    (vii) With regard to a lender serving as a trustee for the purpose 
of originating loans for a school or school-affiliated organization, 
the audit must include a determination that--
    (A) Except as provided in paragraph (c)(2)(vii)(B) of this section, 
the school used all proceeds from special allowance payments, interest 
subsidies received from the Department, and any proceeds from the sale 
or other disposition of the loans originated through the lender for 
need-based grant programs and that those funds supplemented, but did 
not supplant, other Federal or non-Federal funds otherwise available to 
be used to make need-based grants to its students; and
    (B) The lender used no more than a reasonable portion of payments 
and proceeds from the loans for direct administrative expenses in 
accordance with Sec.  682.601(b), with all references to eligible 
school lender understood to mean a lender in its capacity as trustee on 
behalf of a school or school-affiliated organization for the purpose of 
originating loans.
* * * * *

0
22. Section 682.401 is amended by:
0
A. In paragraph (e)(1)(i), adding the words ``stock or other 
securities, tuition payment or reimbursement'' immediately after the 
word ``payment'', and by adding the words ``, or any individual or 
entity,'' immediately after the words ``school-affiliated 
organization'' the second time they appear.

[[Page 55997]]

0
B. In paragraph (e)(1)(i)(D), adding the words ``travel or'' 
immediately after the words ``Payment of''.
0
C. Revising paragraph (e)(1)(i)(F).
0
D. In paragraph (e)(1)(iii)(C), removing the word ``and'' immediately 
after the semicolon.
0
E. In paragraph (e)(1)(iii)(D), removing the punctuation ``.'' at the 
end of the paragraph and adding, in its place, the punctuation ``;''.
0
F. Adding new paragraphs (e)(1)(iii)(E), (F), and (G).
0
G. In paragraph (e)(1)(v), adding the words ``, terms or conditions'' 
immediately after the word ``availability''.
0
H. In paragraph (e)(2)(i), removing the word ``Assistance'' at the 
beginning of the paragraph and adding, in its place, the words 
``Technical assistance'', and removing the words ``that provided'' and 
adding, in their place, the words ``the technical assistance 
provided''.
0
I. In paragraph (e)(2)(ii), adding the words ``and 433A'' immediately 
after the reference to ``422(h)(4)(B)''.
0
J. In paragraph (e)(2)(iii), removing the word ``excluding'' and 
adding, in its place, the word ``including'', and removing the word 
``initial'' and adding, in its place, the word ``entrance''.
0
K. Revising paragraph (e)(2)(vi).
0
L. In paragraph (e)(3)(iii), removing the words ``The terms'' and 
adding, in their place, the words ``The term'', and removing the words 
``computer hardware'' and adding, in their place, the words 
``information technology equipment''.
0
M. Removing paragraph (e)(3)(v).
0
N. Adding a new paragraph (g).
    The revision and additions read as follows:


Sec.  682.401  Basic program agreement.

* * * * *
    (e) * * *
    (1) * * *
    (i) * * *
    (F) Performance of, or payment to a third party to perform, any 
school function required under title IV, except that the guaranty 
agency may provide entrance counseling as provided in Sec.  682.604(f) 
and exit counseling as provided in Sec.  682.604(g), and may provide 
services to participating foreign schools at the direction of the 
Secretary, as a third-party servicer.
* * * * *
    (iii) * * *
    (E) Providing or reimbursing travel or entertainment expenses;
    (F) Providing or reimbursing tuition payments or expenses; and
    (G) Offering prizes, or providing payments of stocks or other 
securities.
* * * * *
    (2) * * *
    (vi) Reimbursement of reasonable expenses incurred by school 
employees to participate in the activities of an agency's governing 
board, a standing official advisory committee, or in support of other 
official activities of the agency;
* * * * *
    (g)(1) A guaranty agency must work with schools that participate in 
its program to develop and make available high-quality educational 
materials and programs that provide training to students and their 
families in budgeting and financial management, including debt 
management and other aspects of financial literacy, such as the cost of 
using high-interest loans to pay for postsecondary education, and how 
budgeting and financial management relate to the title IV student loan 
programs.
    (2) The materials and programs described in paragraph (g)(1) of 
this section must be in formats that are simple and understandable to 
students and their families, and must be made available to students and 
their families by the guaranty agency before, during, and after a 
student's enrollment at an institution of higher education.
    (3) A guaranty agency may provide similar programs and materials to 
an institution that participates only in the William D. Ford Federal 
Direct Loan Program.
    (4) A lender or loan servicer may also provide an institution with 
outreach and financial literacy information consistent with the 
requirements of paragraphs (g)(1) and (2) of this section.

0
23. Section 682.402 is amended by:
0
A. Revising paragraph (c).
0
B. In paragraph (h)(1)(i), removing the word ``The'' at the beginning 
of the sentence and adding, in its place, the words ``Except as 
provided in paragraph (h)(1)(v) of this section, the''.
0
C. Adding a new paragraph (h)(1)(v).
    The revision and addition read as follows:


Sec.  682.402  Death, disability, closed school, false certification, 
unpaid refunds, and bankruptcy payments.

* * * * *
    (c)(1) Total and permanent disability. (i) A borrower's loan is 
discharged if the borrower becomes totally and permanently disabled, as 
defined in Sec.  682.200(b), and satisfies the eligibility requirements 
in this section.
    (ii) For a borrower who becomes totally and permanently disabled as 
described in paragraph (1) of the definition of that term in Sec.  
682.200(b), the borrower's loan discharge application is processed in 
accordance with paragraphs (c)(2) through (7) of this section.
    (iii) For a veteran who is totally and permanently disabled as 
described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the veteran's loan discharge application is processed in 
accordance with paragraph (c)(8) of this section.
    (2) Discharge application process for a borrower who is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  682.200(b). After being notified by the borrower or 
the borrower's representative that the borrower claims to be totally 
and permanently disabled, the lender promptly requests that the 
borrower or the borrower's representative submit a discharge 
application to the lender on a form approved by the Secretary. The 
application must contain a certification by a physician, who is a 
doctor of medicine or osteopathy legally authorized to practice in a 
State, that the borrower is totally and permanently disabled as 
described in paragraph (1) of the definition of that term in Sec.  
682.200(b). The borrower must submit the application to the lender 
within 90 days of the date the physician certifies the application. If 
the lender and guaranty agency approve the discharge claim under the 
procedures described in paragraph (c)(7) of this section, the guaranty 
agency must assign the loan to the Secretary.
    (3) Secretary's eligibility determination. (i) If, after reviewing 
the borrower's application, the Secretary determines that the 
certification provided by the borrower supports the conclusion that the 
borrower is totally and permanently disabled, as described in paragraph 
(1) of the definition of that term in Sec.  682.200(b), the borrower is 
considered totally and permanently disabled as of the date the 
physician certifies the borrower's application.
    (ii) Upon making a determination that the borrower is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  682.200(b), the Secretary discharges the borrower's 
obligation to make further payments on the loan and notifies the 
borrower that the loan has been discharged. Any payments received after 
the date the physician certified the borrower's loan discharge 
application are returned to the person who made the payments on the 
loan. The notification to the borrower explains the terms and 
conditions under which the borrower's obligation to repay the loan will 
be reinstated, as specified in paragraph (c)(5)(i) of this section.

[[Page 55998]]

    (iii) If the Secretary determines that the certification provided 
by the borrower does not support the conclusion that the borrower is 
totally and permanently disabled as described in paragraph (1) of the 
definition of that term in Sec.  682.200(b), the Secretary notifies the 
borrower that the application for a disability discharge has been 
denied and that the loan is due and payable to the Secretary under the 
terms of the promissory note.
    (iv) The Secretary reserves the right to require the borrower to 
submit additional medical evidence if the Secretary determines that the 
borrower's application does not conclusively prove that the borrower is 
totally and permanently disabled as described in paragraph (1) of the 
definition of that term in Sec.  682.200(b). As part of the Secretary's 
review of the borrower's discharge application, the Secretary may 
arrange for an additional review of the borrower's condition by an 
independent physician at no expense to the borrower.
    (4) Treatment of disbursements made during the period from the date 
of the physician's certification until the date of discharge. If a 
borrower received a Title IV loan or TEACH Grant prior to the date the 
physician certified the borrower's discharge application and a 
disbursement of that loan or grant is made during the period from the 
date of the physician's certification until the date the Secretary 
grants a discharge under this section, 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.
    (5) Conditions for reinstatement of a loan after a total and 
permanent disability discharge. (i) The Secretary reinstates the 
borrower's obligation to repay a loan that was discharged in accordance 
with paragraph (c)(3)(ii) of this section if, within three years after 
the date the Secretary granted the discharge, the borrower--
    (A) Has annual earnings from employment that exceed 100 percent of 
the poverty guideline for a family of two, as published annually by the 
United States Department of Health and Human Services pursuant to 42 
U.S.C. 9902(2);
    (B) Receives a new TEACH Grant or a new loan under the Perkins, 
FFEL, or Direct Loan programs, except for a FFEL or Direct 
Consolidation Loan that includes loans that were not discharged; or
    (C) Fails to ensure that the full amount of any disbursement of a 
title IV loan or TEACH Grant received prior to the discharge date that 
is made during the three-year period following the discharge date is 
returned to the loan holder or to the Secretary, as applicable, within 
120 days of the disbursement date.
    (ii) If a borrower's obligation to repay a loan is reinstated, the 
Secretary--
    (A) Notifies the borrower that the borrower's obligation to repay 
the loan has been reinstated; and
    (B) Does not require the borrower to pay interest on the loan for 
the period from the date the loan was discharged until the date the 
borrower's obligation to repay the loan was reinstated.
    (iii) The Secretary's notification under paragraph (c)(5)(ii)(A) of 
this section will include--
    (A) The reason or reasons for the reinstatement;
    (B) 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
    (C) Information on how the borrower may contact the Secretary if 
the borrower has questions about the reinstatement or believes that the 
obligation to repay the loan was reinstated based on incorrect 
information.
    (6) Borrower's responsibilities after a total and permanent 
disability discharge. During the three-year period described in 
paragraph (c)(5)(i) of this section, the borrower or, if applicable, 
the borrower's representative must--
    (i) Promptly notify the Secretary of any changes in address or 
phone number;
    (ii) Promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(c)(5)(i)(A) of this section; and
    (iii) Provide the Secretary, upon request, with documentation of 
the borrower's annual earnings from employment.
    (7) Lender and guaranty agency actions. (i) After being notified by 
a borrower or a borrower's representative that the borrower claims to 
be totally and permanently disabled, the lender must continue 
collection activities until it receives either the certification of 
total and permanent disability from a physician or a letter from a 
physician stating that the certification has been requested and that 
additional time is needed to determine if the borrower is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in Sec.  682.200(b). Except as provided in paragraph 
(c)(7)(iii) of this section, after receiving the physician's 
certification or letter the lender may not attempt to collect from the 
borrower or any endorser.
    (ii) The lender must submit a disability claim to the guaranty 
agency if the borrower submits a certification by a physician and the 
lender makes a determination that the certification supports the 
conclusion that the borrower is totally and permanently disabled as 
described in paragraph (1) of the definition of that term in Sec.  
682.200(b).
    (iii) If the lender determines that a borrower who claims to be 
totally and permanently disabled is not totally and permanently 
disabled as described in paragraph (1) of the definition of that term 
in Sec.  682.200(b), or if the lender does not receive the physician's 
certification of total and permanent disability within 60 days of the 
receipt of the physician's letter requesting additional time, as 
described in paragraph (c)(7)(i) of this section, the lender must 
resume collection of the loan and is deemed to have exercised 
forbearance of payment of both principal and interest from the date 
collection activity was suspended. The lender may capitalize, in 
accordance with Sec.  682.202(b), any interest accrued and not paid 
during that period.
    (iv) The guaranty agency must pay a claim submitted by the lender 
if the guaranty agency has reviewed the application and determined that 
it is complete and that it supports the conclusion that the borrower is 
totally and permanently disabled as described in paragraph (1) of the 
definition of that term in Sec.  682.200(b).
    (v) If the guaranty agency does not pay the disability claim, the 
guaranty agency must return the claim to the lender with an explanation 
of the basis for the agency's denial of the claim. Upon receipt of the 
returned claim, the lender must notify the borrower that the 
application for a disability discharge has been denied, provide the 
basis for the denial, and inform the borrower that the lender will 
resume collection on the loan. The lender is deemed to have exercised 
forbearance of both principal and interest from the date collection 
activity was suspended until the first payment due date. The lender may 
capitalize, in accordance with Sec.  682.202(b), any interest accrued 
and not paid during that period.
    (vi) If the guaranty agency pays the disability claim, the lender 
must notify the borrower that--
    (A) The loan will be assigned to the Secretary for determination of 
eligibility for a total and permanent disability discharge and that no 
payments are due on the loan; and

[[Page 55999]]

    (B) If the Secretary discharges the loan based on a determination 
that the borrower is totally and permanently disabled as described in 
paragraph (1) of the definition of that term in Sec.  682.200(b), the 
Secretary will reinstate the borrower's obligation to repay the loan 
if, within three years after the date the Secretary granted the 
discharge, the borrower--
    (1) Receives annual earnings from employment that exceed 100 
percent of the poverty guideline for a family of two, as published 
annually by the United States Department of Health and Human Services 
pursuant to 42 U.S.C. 9902(2);
    (2) Receives a new TEACH Grant or a new title IV loan, except for a 
FFEL or Direct Consolidation Loan that includes loans that were not 
discharged; or
    (3) Fails to ensure that the full amount of any disbursement of a 
title IV loan or TEACH Grant received prior to the discharge date that 
is made during the three-year period following the discharge date is 
returned to the loan holder or to the Secretary, as applicable, within 
120 days of the disbursement date.
    (vii) After receiving a claim payment from the guaranty agency, the 
lender must forward to the guaranty agency any payments subsequently 
received from or on behalf of the borrower.
    (viii) The Secretary reimburses the guaranty agency for a 
disability claim paid to the lender after the agency pays the claim to 
the lender.
    (ix) The guaranty agency must assign the loan to the Secretary 
after the guaranty agency pays the disability claim.
    (8) Discharge application process for veterans who are totally and 
permanently disabled as described in paragraph (2) of the definition of 
that term in Sec.  682.200(b)--(i) General. After being notified by the 
veteran or the veteran's representative that the veteran claims to be 
totally and permanently disabled, the lender promptly requests that the 
veteran or the veteran's representative submit a discharge application 
to the lender, on a form approved by the Secretary. The application 
must be accompanied by documentation from the Department of Veterans 
Affairs showing that the Department of Veterans Affairs has determined 
that the veteran is unemployable due to a service-connected disability. 
The veteran will not be required to provide any additional 
documentation related to the veteran's disability.
    (ii) Lender and guaranty agency actions. (A) After being notified 
by a veteran or a veteran's representative that the veteran claims to 
be totally and permanently disabled as described in paragraph (2) of 
the definition of that term in Sec.  682.200(b), the lender must 
continue collection activities until it receives the veteran's 
completed loan discharge application with the required documentation 
from the Department of Veterans Affairs, as described in paragraph 
(8)(i) of this section. Except as provided in paragraph (c)(8)(ii)(C) 
of this section, the lender will not attempt to collect from the 
veteran or any endorser after receiving the veteran's discharge 
application and documentation from the Department of Veterans Affairs.
    (B) If the veteran submits a completed loan discharge application 
and the required documentation from the Department of Veterans Affairs, 
and the documentation indicates that the veteran is totally and 
permanently disabled as described in paragraph (2) of the definition of 
that term in Sec.  682.200(b), the lender must submit a disability 
claim to the guaranty agency.
    (C) If the documentation from the Department of Veterans Affairs 
does not indicate that the veteran is totally and permanently disabled 
as described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the lender--
    (1) Must resume collection and is deemed to have exercised 
forbearance of payment of both principal and interest from the date 
collection activity was suspended. The lender may capitalize, in 
accordance with Sec.  682.202(b), any interest accrued and not paid 
during that period.
    (2) Must inform the veteran that he or she may reapply for a total 
and permanent disability discharge in accordance with the procedures 
described in Sec.  682.402(c)(2) through (c)(7), if the documentation 
from the Department of Veterans Affairs does not indicate that the 
veteran is totally and permanently disabled as described in paragraph 
(2) of the definition of that term in Sec.  682.200(b), but indicates 
that the veteran may be totally and permanently disabled as described 
in paragraph (1) of the definition of that term.
    (D) If the documentation from the Department of Veterans Affairs 
indicates that the borrower is totally and permanently disabled as 
described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the guaranty agency must submit a copy of the veteran's 
discharge application and supporting documentation to the Secretary, 
and must notify the veteran that the veteran's loan discharge request 
has been referred to the Secretary for a determination of discharge 
eligibility.
    (E) If the documentation from the Department of Veterans Affairs 
does not indicate that the veteran is totally and permanently disabled 
as described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the guaranty agency does not pay the disability claim and 
must return the claim to the lender with an explanation of the basis 
for the agency's denial of the claim. Upon receipt of the returned 
claim, the lender must notify the veteran that the application for a 
disability discharge has been denied, provide the basis for the denial, 
and inform the veteran that the lender will resume collection on the 
loan. The lender is deemed to have exercised forbearance of both 
principal and interest from the date collection activity was suspended 
until the first payment due date. The lender may capitalize, in 
accordance with Sec.  682.202(b), any interest accrued and not paid 
during that period.
    (F) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is totally and permanently disabled as described in paragraph (2) of 
the definition of that term in Sec.  682.200(b), the Secretary notifies 
the guaranty agency that the veteran is eligible for a total and 
permanent disability discharge. Upon notification by the Secretary that 
the veteran is eligible for a discharge, the guaranty agency pays the 
disability discharge claim. Upon receipt of the claim payment from the 
guaranty agency, the lender notifies the veteran that the veteran's 
obligation to make any further payments on the loan has been discharged 
and returns to the person who made the payments on the loan any 
payments received on or after the effective date of the determination 
by the Department of Veterans Affairs that the veteran is unemployable 
due to a service-connected disability.
    (G) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is not totally and permanently disabled as described in paragraph (2) 
of the definition of that term in Sec.  682.200(b), the Secretary 
notifies the guaranty agency of this determination. Upon notification 
by the Secretary that the veteran is not eligible for a discharge, the 
guaranty agency and the lender must follow the procedures described in 
paragraph (c)(8)(ii)(E) of this section.
    (H) The Secretary reimburses the guaranty agency for a disability 
claim paid to the lender after the agency pays the claim to the lender.
* * * * *

[[Page 56000]]

    (h) * * *
    (1) * * *
    (v) In the case of a disability claim based on a veteran's 
discharge request processed in accordance with Sec.  682.402(c)(8), the 
guaranty agency shall--
    (A) Review the claim promptly and not later than 45 days after the 
claim was filed by the lender submit the veteran's discharge 
application and supporting documentation to the Secretary or return the 
claim to the lender in accordance with Sec.  682.402(c)(8)(ii)(D) or 
(E), as applicable; and
    (B) Not later than 45 days after receiving notification from the 
Secretary of the veteran's eligibility or ineligibility for discharge, 
pay the claim or return the claim to the lender in accordance with 
Sec.  682.402(c)(8)(ii)(F) or (G), as applicable.
* * * * *

0
24. Section 682.405 is amended by:
0
A. In paragraph (a)(3), adding a new sentence at the end of the 
paragraph.
0
B. In paragraph (b)(1)(iii), adding the words ``by the guaranty agency 
or its agents'' immediately after the word ``affordable''.
0
C. Revising paragraph (b)(3).
0
D. Adding a new paragraph (c).
    The revision and additions read as follows:


Sec.  682.405  Loan rehabilitation agreement.

    (a) * * *
    (3) * * * Effective for any loan that is rehabilitated on or after 
August 14, 2008, the borrower cannot rehabilitate the loan again if the 
loan returns to default status following the rehabilitation.
    (b) * * *
    (3) Upon the sale of a rehabilitated loan to an eligible lender--
    (i) The guaranty agency must, within 45 days of the sale--
    (A) Provide notice to the prior holder of such sale, and
    (B) Request that any consumer reporting agency to which the default 
was reported remove the record of default from the borrower's credit 
history.
    (ii) The prior holder of the loan must, within 30 days of receiving 
the notification from the guaranty agency, request that any consumer 
reporting agency to which the default claim payment or other equivalent 
record was reported remove such record from the borrower's credit 
history.
* * * * *
    (c) A guaranty agency must make available financial and economic 
education materials, including debt management information, to any 
borrower who has rehabilitated a defaulted loan in accordance with 
paragraph (a)(2) of this section.

0
25. Section 682.410 is amended by:
0
A. In paragraph (b)(5), removing the heading ``Credit bureau reports'' 
and adding, in its place, the heading ``Reports to consumer reporting 
agencies''.
0
B. In paragraph (b)(5)(i) introductory text, removing the words 
``national credit bureaus'' at the end of the paragraph and adding, in 
their place, the words ``nationwide consumer reporting agencies''.
0
C. In paragraph (b)(5)(ii) introductory text, removing the words 
``credit bureau'' and adding, in their place, the words ``consumer 
reporting agency'', and removing the reference ``(b)(6)(v)'' and 
adding, in its place, the reference ``(b)(6)(ii)''.
0
D. In paragraph (b)(5)(iv)(A), removing the words ``credit bureaus'' 
and adding, in their place, the words ``consumer reporting agencies''.
0
E. In paragraph (b)(5)(vi)(F), removing the words ``national credit 
bureaus'' and adding, in their place, the words ``nationwide consumer 
reporting agencies''.
0
F. In paragraph (b)(5)(vi)(G), removing the words ``credit bureaus'' 
and adding, in their place, the words ``consumer reporting agencies''.
0
G. In paragraph (b)(5)(vi)(K), removing the word ``and'' at the end of 
the paragraph.
0
H. In paragraph (b)(5)(vi)(L), removing the punctuation ``.'' at the 
end of the paragraph and adding, in its place, the words ``; and''.
0
I. Adding a new paragraph (b)(5)(vi)(M).
0
J. Redesignating paragraphs (b)(6)(ii), (iii), (iv), (v), and (vi) as 
paragraphs (b)(6)(v), (vi), (vii), (ii), and (iii) respectively.
0
K. In newly redesignated paragraph (b)(6)(iii), removing the reference 
``(b)(6)(v)'' and adding, in its place, the reference ``(b)(6)(ii)'', 
and removing the words ``national credit bureaus (if that is the 
case)'' and adding, in their place, the words ``nationwide consumer 
reporting agencies''.
0
L. Adding a new paragraph (b)(6)(iv).
0
M. In newly redesignated paragraph (b)(6)(vi), removing the reference 
``(b)(6)(iv)'' and adding, in its place, the reference ``(b)(6)(vii)''.
    The additions read as follows:


Sec.  682.410  Fiscal, administrative, and enforcement requirements.

* * * * *
    (b) * * *
    (5) * * *
    (vi) * * *
    (M) Inform the borrower of the options that are available to the 
borrower to remove the loan from default, including an explanation of 
the fees and conditions associated with each option.
* * * * *
    (6) * * *
    (iv) The agency must send a notice informing the borrower of the 
options that are available to remove the loan from default, including 
an explanation of the fees and conditions associated with each option. 
This notice must be sent within a reasonable time after the end of the 
period for requesting an administrative review as specified in 
paragraph (b)(5)(iv)(B) of this section or, if the borrower has 
requested an administrative review, within a reasonable time following 
the conclusion of the administrative review.
* * * * *

0
26. Section 682.601 is amended by adding a new paragraph (a)(7)(iii) to 
read as follows:


Sec.  682.601  Rules for a school that makes or originates loans.

    (a) * * *
    (7) * * *
    (iii) With regard to any school, the audit must include a 
determination that--
    (A) Except as provided in paragraphs (a)(8) and (b) of this 
section, the school used all payments and proceeds from the loans for 
need-based grant programs;
    (B) The school met the requirements of paragraph (c) of this 
section in making the need-based grants; and
    (C) The school used no more than a reasonable portion of payments 
and proceeds from the loans for direct administrative expenses.
* * * * *

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

0
27. The authority citation for part 685 continues to read as follows:

    Authority: 20 U.S.C. 1087a et seq., unless otherwise noted.


0
28. In Sec.  685.102(b), the definition of ``Estimated financial 
assistance'' is amended by:
0
A. Removing paragraphs (1)(ii), (iii), (iv), and (ix), and 
redesignating paragraphs (1)(i), (v), (vi), (vii), and (viii) as 
paragraphs (1)(ii), (iii), (iv), (v), and (vi), respectively.
0
B. Adding a new paragraph (1)(i) and revising newly redesignated 
paragraph (1)(ii).
0
C. Adding the word ``and'' after the semicolon at the end of newly 
redesignated paragraph (1)(v).

[[Page 56001]]

0
D. Removing the words ``; and'' at the end of newly redesignated 
paragraph (1)(vi) and adding, in their place, the punctuation ``.''.
0
E. Removing paragraph (2)(iii), and redesignating paragraphs (2)(iv) 
and (v) as paragraphs (2)(iii) and (iv), respectively.
0
F. In newly redesignated paragraph (2)(iii), removing the words 
``veterans' educational benefits paid under chapter 30 of title 38 of 
the United States Code (Montgomery GI Bill-Active Duty) and''.
0
G. In newly redesignated paragraph (2)(iv), removing the word ``and'' 
at the end of the paragraph.
0
H. Adding a new paragraph (2)(v).
0
I. In paragraph (2)(vi), removing the words ``this part'' in the first 
sentence and adding, in their place, the words ``a title IV, HEA 
program,'' and by removing the punctuation ``.'' at the end of the 
paragraph and adding, in its place, the punctuation ``;''.
0
J. Adding new paragraphs (2)(vii) and (viii).
    The revisions and additions read as follows:


Sec.  685.102  Definitions.

    Estimated financial assistance. (1) * * *
    (i) Except as provided in paragraph (2)(iii) of this definition, 
national service education awards or post-service benefits under title 
I of the National and Community Service Act of 1990 (AmeriCorps).
    (ii) Except as provided in paragraph (2)(vii) of this definition, 
veterans' education benefits;
* * * * *
    (2) * * *
    (v) Non-need-based employment earnings;
* * * * *
    (vii) Federal veterans' education benefits paid under--
    (A) Chapter 103 of title 10, United States Code (Senior Reserve 
Officers' Training Corps);
    (B) Chapter 106A of title 10, United States Code (Educational 
Assistance for Persons Enlisting for Active Duty);
    (C) Chapter 1606 of title 10, United States Code (Selected Reserve 
Educational Assistance Program);
    (D) Chapter 1607 of title 10, United States Code (Educational 
Assistance Program for Reserve Component Members Supporting Contingency 
Operations and Certain Other Operations);
    (E) Chapter 30 of title 38, United States Code (All-Volunteer Force 
Educational Assistance Program, also known as the ``Montgomery GI 
Bill--active duty'');
    (F) Chapter 31 of title 38, United States Code (Training and 
Rehabilitation for Veterans with Service-Connected Disabilities);
    (G) Chapter 32 of title 38, United States Code (Post-Vietnam Era 
Veterans' Educational Assistance Program);
    (H) Chapter 33 of title 38, United States Code (Post 9/11 
Educational Assistance);
    (I) Chapter 35 of title 38, United States Code (Survivors' and 
Dependents' Educational Assistance Program);
    (J) Section 903 of the Department of Defense Authorization Act, 
1981 (10 U.S.C. 2141 note) (Educational Assistance Pilot Program);
    (K) Section 156(b) of the ``Joint Resolution making further 
continuing appropriations and providing for productive employment for 
the fiscal year 1983, and for other purposes'' (42 U.S.C. 402 note) 
(Restored Entitlement Program for Survivors, also known as ``Quayle 
benefits'');
    (L) The provisions of chapter 3 of title 37, United States Code, 
related to subsistence allowances for members of the Reserve Officers 
Training Corps; and
    (M) Any program that the Secretary may determine is covered by 
section 480(c)(2) of the HEA; and
    (viii) Iraq and Afghanistan Service Grants made under section 420R 
of the HEA.
* * * * *

0
29. Section 685.200 is amended by:
0
A. In the introductory text to paragraph (a)(1)(iv), adding the words 
``or TEACH Grant service obligation'' immediately after the word 
``loan''.
0
B. In the introductory text to paragraph (a)(1)(iv)(A), adding the 
words ``or TEACH Grant service obligation'' immediately after the word 
``Act''.
0
C. In paragraph (a)(1)(iv)(A)(1), removing the word ``and'' at the end 
of the paragraph.
0
D. In paragraph (a)(1)(iv)(A)(2), removing the punctuation ``.'' at the 
end of the paragraph and adding, in its place, the words ``; and''.
0
E. Adding a new paragraph (a)(1)(iv)(A)(3).
0
F. Removing paragraph (a)(1)(iv)(B).
0
G. Redesignating paragraph (a)(1)(iv)(C) as paragraph (a)(1)(iv)(B).
0
H. In the introductory text to newly redesignated paragraph 
(a)(1)(iv)(B), removing the words ``based on'' and adding, in their 
place, the word ``after'', and adding the words ``based on a discharge 
request received prior to July 1, 2010'' immediately after the word 
``disabled''.
    The addition reads as follows:


Sec.  685.200  Borrower eligibility.

    (a) * * *
    (1) * * *
    (iv) * * *
    (A) * * *
    (3) If the borrower receives a new Direct Loan, other than a Direct 
Consolidation Loan, within three years of the date that any previous 
title IV loan or TEACH Grant service obligation was discharged due to a 
total and permanent disability in accordance with Sec.  685.213(b)(4), 
34 CFR 674.61(b)(3)(i), 34 CFR 682.402(c), or 34 CFR 686.42(b) based on 
a discharge request received on or after July 1, 2010, resumes 
repayment on the previously discharged loan in accordance with Sec.  
685.213(b)(3)(ii)(A), 34 CFR 674.61(b)(5), or 34 CFR 682.402(c)(5), or 
acknowledges that he or she is once again subject to the terms of the 
TEACH Grant agreement to serve before receiving the new loan.
* * * * *

0
30. Section 685.202 is amended by:
0
A. Adding a new paragraph (a)(4).
0
B. In paragraph (b)(2), removing the words ``the Secretary 
capitalizes'' and adding, in their place, the words ``or for a Direct 
PLUS Loan, the Secretary may capitalize''.
    The addition reads as follows:


Sec.  685.202  Charges for which Direct Loan Program borrowers are 
responsible.

    (a) * * *
    (4) Applicability of the Servicemembers Civil Relief Act (50 U.S.C. 
527, App. sec. 207). Notwithstanding paragraphs (a)(1) through (3) of 
this section, effective August 14, 2008, upon the Secretary's receipt 
of a borrower's written request and a copy of the borrower's military 
orders, the maximum interest rate, as defined in 50 U.S.C. 527, App. 
section 207(d), on Direct Loan Program loans made prior to the borrower 
entering active duty status is 6 percent while the borrower is on 
active duty military service.
* * * * *

0
31. Section 685.203 is amended by:
0
A. In paragraph (a)(1)(iii), adding the punctuation ``,'' immediately 
after ``$3,500''.
0
B. Revising paragraph (b).
0
C. In paragraph (c)(1)(i), adding the words ``, except as provided in 
paragraph (c)(3) for certain dependent undergraduate students'' 
immediately after the words ``this section''.
0
D. In paragraph (c)(2)(i)(A), adding the words ``, or, for a loan first 
disbursed on or after July 1, 2008, $6,000,'' immediately after 
``$4,000''.
0
E. Removing paragraph (c)(2)(i)(B).
0
F. Redesignating paragraph (c)(2)(i)(C) as paragraph (c)(2)(i)(B).

[[Page 56002]]

0
G. In newly redesignated paragraph (c)(2)(i)(B), adding the words ``, 
or, for a loan first disbursed on or after July 1, 2008, $6,000,'' 
immediately after $4,000''.
0
H. Redesignating paragraph (c)(2)(i)(D) as paragraph (c)(2)(i)(C).
0
I. In newly redesignated paragraph (c)(2)(i)(C), adding the words ``, 
or, for a loan first disbursed on or after July 1, 2008, $6,000,'' 
immediately after ``$4,000''.
0
J. In paragraph (c)(2)(ii)(A), adding the words ``, or, for a loan 
first disbursed on or after July 1, 2008, $6,000,'' immediately after 
``$4,000''.
0
K. In paragraph (c)(2)(ii)(B), adding the words ``, or, for a loan 
first disbursed on or after July 1, 2008, $6,000,'' immediately after 
``$4,000''.
0
L. In paragraph (c)(2)(iii)(A), adding the words ``, or, for a loan 
first disbursed on or after July 1, 2008, $7,000,'' immediately after 
``$5,000''.
0
M. In paragraph (c)(2)(iii)(B), adding the words ``, or, for a loan 
first disbursed on or after July 1, 2008, $7,000,'' immediately after 
``$5,000''.
0
N. In paragraph (c)(2)(vi)(A), adding the words ``, or, for a loan 
first disbursed on or after July 1, 2008, $6,000,'' immediately after 
``$4,000''.
0
O. Adding a new paragraph (c)(3).
0
P. In paragraph (e)(1), adding the words ``, or, effective July 1, 
2008, $31,000,'' immediately after ``$23,000''.
0
Q. In paragraph (e)(2), adding the words ``, or, effective July 1, 
2008, $57,500,'' immediately after ``$46,000''.
0
R. Adding a new paragraph (k).
    The revisions and additions read as follows:


Sec.  685.203  Loan limits.

    (a) * * *
    (b) Direct Unsubsidized Loans. (1) In the case of a dependent 
undergraduate student--
    (i) For a loan first disbursed before July 1, 2008, the total 
amount a student may borrow for any period of study under the Federal 
Direct Unsubsidized Loan Program and the Federal Unsubsidized Stafford 
Loan Program is the same as the amount determined under paragraph (a) 
of this section, less any amount received under the Federal Direct 
Stafford/Ford Loan Program or the Federal Stafford Loan Program.
    (ii) Except as provided in paragraph (c)(3) of this section, for a 
loan first disbursed on or after July 1, 2008, the total amount a 
student may borrow for any period of study under the Federal Direct 
Unsubsidized Stafford/Ford Loan Program in combination with the Federal 
Unsubsidized Stafford Loan Program is the same as the amount determined 
under paragraph (a) of this section, less any amount received under the 
Federal Direct Stafford/Ford Loan Program or the Federal Stafford Loan 
Program, plus--
    (A) $2,000, for a program of study of at least a full academic year 
in length.
    (B) For a program of study that is one academic year or more in 
length with less than a full academic year remaining, the amount that 
is the same ratio to $2,000 as the--
[GRAPHIC] [TIFF OMITTED] TR29OC09.003

    (C) For a program of study that is less than a full academic year 
in length, the amount that is the same ratio to $2,000 as the lesser of 
the--
[GRAPHIC] [TIFF OMITTED] TR29OC09.004

    or
    [GRAPHIC] [TIFF OMITTED] TR29OC09.005
    
    (2) In the case of an independent undergraduate student, a graduate 
or professional student, or certain dependent undergraduate students 
under the conditions specified in paragraph (c)(1)(ii) of this section, 
except as provided in paragraph (c)(3) of this section, the total 
amount the student may borrow for any period of enrollment under the 
Federal Direct Unsubsidized Stafford/Ford Loan and Federal Unsubsidized 
Stafford Loan programs may not exceed the amounts determined under 
paragraph (a) of this section less any amount received under the 
Federal Direct Stafford/Ford Loan Program or the Federal Stafford Loan 
Program, in combination with the amounts determined under paragraph (c) 
of this section.
    (c) * * *
    (3) A dependent undergraduate student who qualifies for additional 
Direct Unsubsidized Loan amounts under this section in accordance with 
paragraph (c)(1)(ii) is not eligible to receive the additional Direct 
Unsubsidized Loan amounts provided under paragraph (b)(1)(ii) of this 
section.
* * * * *
    (k) Any TEACH Grants that have been converted to Direct 
Unsubsidized Loans are not counted against any annual or aggregate loan 
limits under this section.

0
32. Section 685.204 is amended by:
0
A. In paragraph (b)(1)(iii)(A)(2), removing the word ``or'' at the end 
of the paragraph.
0
B. In paragraph (b)(1)(iii)(A)(3), removing the punctuation ``.'' and 
adding, in its place, ``; or'' at the end of the paragraph.
0
C. Adding a new paragraph (b)(1)(iii)(A)(4).
0
D. Revising paragraph (b)(1)(iii)(B).
0
E. Redesignating paragraphs (g) and (h) as paragraphs (h) and (i), 
respectively.
0
F. In newly redesignated paragraph (i)(3), removing the words 
``paragraph (h)(2)'' each time they appear and adding, in their place, 
the words ``paragraph (i)(2)''.
0
G. In newly redesignated paragraph (i)(4), removing the words 
``paragraph (h)(2)'' and adding, in their place, the words ``paragraph 
(i)(2)''.
0
H. Adding a new paragraph (g).
    The revisions and additions read as follows:


Sec.  685.204  Deferment.

* * * * *
    (b) * * *
    (1) * * *
    (iii)(A) * * *
    (4) The Secretary confirms a borrower's half-time enrollment status 
through the use of the National Student Loan Data System if requested 
to do so by the school the borrower is attending.

[[Page 56003]]

    (B)(1) Upon notification by the Secretary that a deferment has been 
granted based on paragraph (b)(1)(iii)(A)(2), (3), or (4) of this 
section, the borrower has the option to cancel the deferment and 
continue paying on the loan.
    (2) If the borrower elects to cancel the deferment and continue 
paying on the loan, the borrower has the option to make the principal 
and interest payments that were deferred. If the borrower does not make 
the payments, the Secretary applies a deferment for the period in which 
payments were not made and capitalizes the interest. The Secretary will 
provide information, including an example, to assist the borrower in 
understanding the impact of capitalization of accrued, unpaid interest 
on the borrower's loan principal and on the total amount of interest to 
be paid over the life of the loan.
* * * * *
    (g) In-school deferments for Direct PLUS Loan borrowers with loans 
first disbursed on or after July 1, 2008. (1)(i) A student Direct PLUS 
Loan borrower is entitled to a deferment on a Direct 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 on at least a 
half-time basis at an eligible institution.
    (ii) If the Secretary grants an in-school deferment to a student 
Direct PLUS Loan borrower based on Sec.  682.204(b)(1)(iii)(A)(2), (3), 
or (4), the deferment period for a Direct PLUS Loan first disbursed on 
or after July 1, 2008 includes the 6-month post-enrollment period 
described in paragraph (g)(1)(i) of this section.
    (2) Upon the request of the borrower, an eligible parent Direct 
PLUS Loan borrower will receive a deferment on a Direct PLUS Loan first 
disbursed on or after July 1, 2008--
    (i) During the period when the student on whose behalf the loan was 
obtained is enrolled at an eligible institution on at least a half-time 
basis; and
    (ii) During the 6-month period that begins on the later of the day 
after the student on whose behalf the loan was obtained 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 borrower ceases to be enrolled 
on at least a half-time basis.
* * * * *

0
33. Section 685.205 is amended by:
0
A. In paragraph (b)(8), removing the word ``or'' at the end of the 
paragraph.
0
B. In paragraph (b)(9), removing the punctuation ``.'' at the end of 
the paragraph and adding, in its place, ``; or''.
0
C. Adding a new paragraph (b)(10) to read as follows:


Sec.  685.205  Forbearance.

* * * * *
    (b) * * *
    (10) For Direct PLUS Loans first disbursed before July 1, 2008, to 
align repayment with a borrower's Direct PLUS Loans that were first 
disbursed on or after July 1, 2008, or with Direct Subsidized Loans or 
Direct Unsubsidized Loans that have a grace period in accordance with 
Sec.  685.207(b) or (c). The Secretary notifies the borrower that the 
borrower has the option to cancel the forbearance and continue paying 
on the loan.
* * * * *

0
34. Section 685.211 is amended by:
0
A. In paragraph (f)(1), removing the words ``credit bureau'' in the 
third sentence and adding, in their place, the words ``consumer 
reporting agency''.
0
B. Adding a new paragraph (f)(4).
    The addition reads as follows:


Sec.  685.211  Miscellaneous repayment provisions.

* * * * *
    (f) * * *
    (4) Effective for any defaulted Direct Loan that is rehabilitated 
on or after August 14, 2008, the borrower cannot rehabilitate the loan 
again if the loan returns to default status following the 
rehabilitation.

0
35. Section 685.213 is revised to read as follows:


Sec.  685.213  Total and permanent disability discharge.

    (a) General. (1) A borrower's Direct Loan is discharged if the 
borrower becomes totally and permanently disabled, as defined in 34 CFR 
682.200(b), and satisfies the eligibility requirements in this section.
    (2) For a borrower who becomes totally and permanently disabled as 
described in paragraph (1) of the definition of that term in 34 CFR 
682.200(b), the borrower's loan discharge application is processed in 
accordance with paragraph (b) of this section.
    (3) For veterans who are totally and permanently disabled as 
described in paragraph (2) of the definition of that term in 34 CFR 
682.200(b), the veteran's loan discharge application is processed in 
accordance with paragraph (c) of this section.
    (b) Discharge application process for a borrower who is totally and 
permanently disabled as described in paragraph (1) of the definition of 
that term in 34 CFR 682.200(b). (1) Borrower application for discharge. 
To qualify for a discharge of a Direct Loan based on a total and 
permanent disability, a borrower must submit a discharge application to 
the Secretary on a form approved by the Secretary. The application must 
contain a certification by a physician, who is a doctor of medicine or 
osteopathy legally authorized to practice in a State, that the borrower 
is totally and permanently disabled as described in paragraph (1) of 
the definition of that term in 34 CFR 682.200(b). The borrower must 
submit the application to the Secretary within 90 days of the date the 
physician certifies the application. Upon receipt of the borrower's 
application, the Secretary notifies the borrower that no payments are 
due on the loan while the Secretary determines the borrower's 
eligibility for discharge.
    (2) Determination of eligibility. (i) If, after reviewing the 
borrower's application, the Secretary determines that the certification 
provided by the borrower supports the conclusion that the borrower 
meets the criteria for a total and permanent disability discharge, as 
described in paragraph (1) of the definition of that term in 34 CFR 
682.200(b), the borrower is considered totally and permanently disabled 
as of the date the physician certifies the borrower's application.
    (ii) Upon making a determination that the borrower is totally and 
permanently disabled, as described in paragraph (1) of the definition 
of that term in 34 CFR 682.200(b), the Secretary discharges the 
borrower's obligation to make any further payments on the loan, 
notifies the borrower that the loan has been discharged, and returns to 
the person who made the payments on the loan any payments received 
after the date the physician certified the borrower's loan discharge 
application. The notification to the borrower explains the terms and 
conditions under which the borrower's obligation to repay the loan will 
be reinstated, as specified in paragraph (b)(4)(i) of this section.
    (iii) If the Secretary determines that the certification provided 
by the borrower does not support the conclusion that the borrower is 
totally and permanently disabled, as described in paragraph (1) of the 
definition of that term in 34 CFR 682.200(b), the Secretary notifies 
the borrower that the application for a disability discharge has been 
denied, and that the loan is due and payable to the Secretary under the 
terms of the promissory note.
    (iv) The Secretary reserves the right to require the borrower to 
submit additional medical evidence if the

[[Page 56004]]

Secretary determines that the borrower's application does not 
conclusively prove that the borrower is totally and permanently 
disabled as described in paragraph (1) of the definition of that term 
in 34 CFR 682.200(b). As part of the Secretary's review of the 
borrower's discharge application, the Secretary may arrange for an 
additional review of the borrower's condition by an independent 
physician at no expense to the borrower.
    (3) Treatment of disbursements made during the period from the date 
of the physician's certification until the date of discharge. If a 
borrower received a title IV loan or TEACH Grant prior to the date the 
physician certified the borrower's discharge application and a 
disbursement of that loan or grant is made during the period from the 
date of the physician's certification until the date the Secretary 
grants a discharge under this section, 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.
    (4) Conditions for reinstatement of a loan after a total and 
permanent disability discharge. (i) The Secretary reinstates a 
borrower's obligation to repay a loan that was discharged in accordance 
with paragraph (b)(2)(ii) of this section if, within three years after 
the date the Secretary granted the discharge, the borrower--
    (A) Has annual earnings from employment that exceed 100 percent of 
the poverty guideline for a family of two, as published annually by the 
United States Department of Health and Human Services pursuant to 42 
U.S.C. 9902(2);
    (B) Receives a new TEACH Grant or a new loan under the Perkins, 
FFEL or Direct Loan programs, except for a FFEL or Direct Consolidation 
Loan that includes loans that were not discharged; or
    (C) Fails to ensure that the full amount of any disbursement of a 
title IV loan or TEACH Grant received prior to the discharge date that 
is made during the three-year period following the discharge date is 
returned to the loan holder or to the Secretary, as applicable, within 
120 days of the disbursement date.
    (ii) If the borrower's obligation to repay the loan is reinstated, 
the Secretary--
    (A) Notifies the borrower that the borrower's obligation to repay 
the loan has been reinstated; and
    (B) Does not require the borrower to pay interest on the loan for 
the period from the date the loan was discharged until the date the 
borrower's obligation to repay the loan was reinstated.
    (iii) The Secretary's notification under paragraph (b)(4)(ii)(A) of 
this section will include--
    (A) The reason or reasons for the reinstatement;
    (B) 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
    (C) Information on how the borrower may contact the Secretary if 
the borrower has questions about the reinstatement or believes that the 
obligation to repay the loan was reinstated based on incorrect 
information.
    (5) Borrower's responsibilities after a total and permanent 
disability discharge. During the three-year period described in 
paragraph (b)(4)(i) of this section, the borrower or, if applicable, 
the borrower's representative must--
    (i) Promptly notify the Secretary of any changes in address or 
phone number;
    (ii) Promptly notify the Secretary if the borrower's annual 
earnings from employment exceed the amount specified in paragraph 
(b)(4)(i)(A) of this section; and
    (iii) Provide the Secretary, upon request, with documentation of 
the borrower's annual earnings from employment.
    (c) Discharge application process for veterans who are totally and 
permanently disabled as described in paragraph (2) of the definition of 
that term in 34 CFR 682.200(b).
    (1) Veteran's application for discharge. To qualify for a discharge 
of a Direct Loan based on a total and permanent disability as described 
in paragraph (2) of the definition of that term in 34 CFR 682.200(b), a 
veteran must submit a discharge application to the Secretary on a form 
approved by the Secretary. The application must be accompanied by 
documentation from the Department of Veterans Affairs showing that the 
Department of Veterans Affairs has determined that the veteran is 
unemployable due to a service-connected disability. The Secretary does 
not require the veteran to provide any additional documentation related 
to the veteran's disability. Upon receipt of the veteran's application, 
the Secretary notifies the veteran that no payments are due on the loan 
while the Secretary determines the veteran's eligibility for discharge.
    (2) Determination of eligibility. (i) If the Secretary determines, 
based on a review of the documentation from the Department of Veterans 
Affairs, that the veteran is totally and permanently disabled as 
described in paragraph (2) of the definition of that term in Sec.  
682.200(b), the Secretary discharges the veteran's obligation to make 
any further payments on the loan and returns to the person who made the 
payments on the loan any payments received on or after the effective 
date of the determination by the Department of Veterans Affairs that 
the veteran is unemployable due to a service-connected disability.
    (ii)(A) If the Secretary determines, based on a review of the 
documentation from the Department of Veterans Affairs, that the veteran 
is not totally and permanently disabled as described in paragraph (2) 
of the definition of that term in 34 CFR 682.200(b), the Secretary 
notifies the veteran that the application for a disability discharge 
has been denied, and that the loan is due and payable to the Secretary 
under the terms of the promissory note.
    (B) The Secretary notifies the veteran that he or she may reapply 
for a total and permanent disability discharge in accordance with the 
procedures described in paragraph (b) of this section if the 
documentation from the Department of Veterans Affairs does not indicate 
that the veteran is totally and permanently disabled as described in 
paragraph (2) of the definition of that term in 34 CFR 682.200(b), but 
indicates that the veteran may be totally and permanently disabled as 
described in paragraph (1) of the definition of that term.

0
36. Section 685.217 is amended by:
0
A. Revising paragraph (a).
0
B. In paragraph (b), adding a definition of Educational service agency 
in alphabetical order.
0
C. Revising the introductory text of paragraph (c)(1).
0
D. In paragraph (c)(1)(ii), adding the words ``or educational service 
agency's'' immediately after the words ``the school's''.
0
E. In paragraph (c)(1)(iii), removing the words ``Bureau of Indian 
Affairs (BIA)'' and adding, in their place, the words ``Bureau of 
Indian Education (BIE)'', and removing the words ``the BIA'' and 
adding, in their place, the words ``the BIE''.
0
F. In paragraph (c)(2), adding the words ``or educational service 
agency'' immediately after the words ``If the school'' at the beginning 
of the paragraph, and removing the words ``the school failed'' and 
adding, in their place, the word ``fails''.
0
G. In paragraph (c)(3)(i)(A), removing the words ``in which'' and 
adding, in their place, the words ``or educational service agency 
where''.

[[Page 56005]]

0
H. In paragraph (c)(3)(i)(B), removing the words ``in which'' and 
adding, in their place, the words ``or educational service agency 
where''.
0
I. In paragraph (c)(3)(ii)(A), removing the word ``in'' and adding, in 
its place, the word ``at'', and adding the words ``, or taught 
mathematics or science to secondary school students on a full-time 
basis at an eligible educational service agency,'' immediately after 
the words ``secondary school''.
0
J. In paragraph (c)(3)(ii)(B), removing the word ``in'' the first time 
it appears and adding, in its place, the word ``at'', and adding the 
words ``or educational service agency'' immediately after the words 
``secondary school'' the first time they appear.
0
K. Adding a new paragraph (c)(3)(iii).
0
L. In paragraph (c)(4)(i), removing the word ``in'' and adding, in its 
place, the word ``at'', and adding the words ``or educational service 
agency'' immediately after the words ``secondary school'' the first 
time they appear.
0
M. In paragraph (c)(4)(ii)(A), removing the word ``in'' and adding, in 
its place, the word ``at'', and adding the words ``, or taught 
mathematics or science on a full-time basis to secondary school 
students at an eligible educational service agency,'' immediately after 
the words ``secondary school''.
0
N. In paragraph (c)(4)(ii)(B), removing the word ``in'' the first time 
it appears and adding, in its place, the word ``at'', and by adding the 
words ``or educational service agency'' immediately after the words 
``secondary school'' the first time they appear.
0
O. Adding a new paragraph (c)(4)(iii).
0
P. Revising paragraph (c)(9).
0
Q. Revising paragraph (c)(11).
0
R. In paragraph (d)(2), removing the reference ``34 CFR 682.215'' and 
adding, in its place, the reference ``34 CFR 682.216''.
    The revisions and additions read as follows:


Sec.  685.217  Teacher loan forgiveness program.

    (a) General. (1) The teacher loan forgiveness program is intended 
to encourage individuals to enter and continue in the teaching 
profession. For new borrowers, the Secretary repays the amount 
specified in this paragraph (a) on the borrower's subsidized and 
unsubsidized Federal Stafford Loans, Direct Subsidized Loans, Direct 
Unsubsidized Loans, and in certain cases, Federal Consolidation Loans 
or Direct Consolidation Loans. The forgiveness program is only 
available to a borrower who has no outstanding loan balance under the 
FFEL Program or the Direct Loan Program on October 1, 1998 or who has 
no outstanding loan balance on the date he or she obtains a loan after 
October 1, 1998.
    (2)(i) The borrower must have been employed at an eligible 
elementary or secondary school that serves low-income families or by an 
educational service agency that serves low-income families as a full-
time teacher for five consecutive complete academic years. The required 
five years of teaching may include any combination of qualifying 
teaching service at an eligible elementary or secondary school or an 
eligible educational service agency.
    (ii) Teaching at an eligible elementary or secondary school may be 
counted toward the required five consecutive complete academic years 
only if at least one year of teaching was after the 1997-1998 academic 
year.
    (iii) Teaching at an eligible educational service agency may be 
counted toward the required five consecutive complete academic years 
only if the consecutive five-year period includes qualifying service at 
an eligible educational service agency performed after the 2007-2008 
academic year.
    (3) All borrowers eligible for teacher loan forgiveness may receive 
loan forgiveness of up to a combined total of $5,000 on the borrower's 
eligible FFEL and Direct Loan Program loans.
    (4) A borrower may receive loan forgiveness of up to a combined 
total of $17,500 on the borrower's eligible FFEL and Direct Loan 
Program loans if the borrower was employed for five consecutive years--
    (i) At an eligible secondary school as a highly qualified 
mathematics or science teacher, or at an eligible educational service 
agency as a highly qualified teacher of mathematics or science to 
secondary school students; or
    (ii) At an eligible elementary or secondary school or educational 
service agency as a highly qualified special education teacher.
    (5) The loan for which the borrower is seeking forgiveness must 
have been made prior to the end of the borrower's fifth year of 
qualifying teaching service.
    (b) * * *
    Educational service agency means a regional public multiservice 
agency authorized by State statute to develop, manage, and provide 
services or programs to local educational agencies, as defined in 
section 9101 of the Elementary and Secondary Education Act of 1965, as 
amended.
* * * * *
    (c) * * *
    (1) A borrower who has been employed at an elementary or secondary 
school or an educational service agency as a full-time teacher for five 
consecutive complete academic years may obtain loan forgiveness under 
this program if the elementary or secondary school or educational 
service agency--
* * * * *
    (3) * * *
    (iii) Teaching service performed at an eligible educational service 
agency may be counted toward the required five years of teaching only 
if the consecutive five-year period includes qualifying service at an 
eligible educational service agency performed after the 2007-2008 
academic year.
    (4) * * *
    (iii) Teaching service performed at an eligible educational service 
agency may be counted toward the required five years of teaching only 
if the consecutive five-year period includes qualifying service at an 
eligible educational service agency performed after the 2007-2008 
academic year.
* * * * *
    (9) A borrower who was employed as a teacher at more than one 
qualifying school, at more than one qualifying educational service 
agency, or at a combination of both during an academic year and 
demonstrates that the combined teaching was the equivalent of full-
time, as supported by the certification of one or more of the chief 
administrative officers of the schools or educational service agencies 
involved, is considered to have completed one academic year of 
qualifying teaching.
* * * * *
    (11) A borrower may not receive loan forgiveness for the same 
qualifying teaching service under this section if the borrower receives 
a benefit for the same teaching service under--
    (i) Subtitle D of title I of the National and Community Service Act 
of 1990;
    (ii) 34 CFR 685.219; or
    (iii) Section 428K of the Act.
* * * * *


Sec.  685.219  [Amended]

0
37. Section 685.219 is amended in paragraph (b) by removing the words 
``licensed or regulated health care'' in paragraph (5)(i) of the 
definition of ``Public service organization'' and adding, in their 
place, the words ``licensed or regulated child care''.


Sec.  685.220  [Amended]

0
38. Section 685.220 is amended by:
0
A. In paragraph (d)(1)(i)(B)(3), adding the words ``or the no accrual 
of interest benefit for active duty service'' immediately after the 
word ``Program''.
0
B. In paragraph (d)(1)(i)(B)(4), adding the words ``or an income-based 
repayment plan'' immediately after the

[[Page 56006]]

words ``income contingent repayment plan''.
0
C. In paragraph (d)(1)(i)(B)(5), adding the words ``or the no accrual 
of interest benefit for active duty service'' immediately after the 
words ``Forgiveness Program''.
0
D. In paragraph (d)(1)(ii)(D), adding the words ``or the income-based 
repayment plan described in Sec.  685.208(m),'' immediately after the 
reference ``Sec.  685.208(k)''.

0
39. Section 685.221 is amended by:
0
A. Revising paragraph (a)(4).
0
B. In paragraph (b)(1), removing the words ``Except as provided under 
paragraph (b)(2) of this section, the'' in the second sentence and 
adding, in their place, the word ``The''.
0
C. In paragraph (b)(2)(i), removing the word ``The'' at the beginning 
of the sentence and adding, in its place, the words ``Except for 
borrowers provided for in paragraph (b)(2)(ii) of this section, the''.
0
D. Redesignating paragraphs (b)(2)(ii) and (b)(2)(iii) as paragraphs 
(b)(2)(iii) and (b)(2)(iv), respectively.
0
E. Adding a new paragraph (b)(2)(ii).
0
F. In newly redesignated paragraph (b)(2)(iii), removing the words ``or 
(b)(2)(i)'' and adding, in their place, the words ``, (b)(2)(i), or 
(b)(2)(ii)''.
0
G. In newly redesignated paragraph (b)(2)(iv), removing the words ``or 
(b)(2)(i)'' and adding, in their place, the words ``, (b)(2)(i), or 
(b)(2)(ii)''.
    The revision and addition read as follows:


Sec.  685.221  Income-based repayment plan.

    (a) * * *
    (4) Partial financial hardship means a circumstance in which--
    (i) For an unmarried borrower or a married borrower who files an 
individual Federal tax return, the annual amount due on all of the 
borrower's eligible loans, as calculated under a standard repayment 
plan based on a 10-year repayment period, using the greater of the 
amount due at the time the borrower initially entered repayment or at 
the time the borrower elects the income-based repayment plan, exceeds 
15 percent of the difference between the borrower's AGI and 150 percent 
of the poverty guideline for the borrower's family size; or
    (ii) For a married borrower who files a joint Federal tax return 
with his or her spouse, the annual amount due on all of the borrower's 
eligible loans and, if applicable, the spouse's eligible loans, as 
calculated under a standard repayment plan based on a 10-year repayment 
period, using the greater of the amount due at the time the loans 
initially entered repayment or at the time the borrower or spouse 
elects the income-based repayment plan, exceeds 15 percent of the 
difference between the borrower's and spouse's AGI, and 150 percent of 
the poverty guideline for the borrower's family size.
* * * * *
    (b) * * *
    (2) * * *
    (ii) Both the borrower and borrower's spouse have eligible loans 
and filed a joint Federal tax return, in which case the Secretary 
determines--
    (A) Each borrower's percentage of the couple's total eligible loan 
debt;
    (B) The adjusted monthly payment for each borrower by multiplying 
the calculated payment by the percentage determined in paragraph 
(b)(2)(ii)(A) of this section; and
    (C) If the borrower's loans are held by multiple holders, the 
borrower's adjusted monthly Direct Loan payment by multiplying the 
payment determined in paragraph (b)(2)(ii)(B) of this section by the 
percentage of the outstanding principal amount of eligible loans that 
are Direct Loans;
* * * * *
[FR Doc. E9-25190 Filed 10-28-09; 8:45 am]

BILLING CODE 4000-01-P