federal register

Wednesday
September 20, 1995

Part VIII

Department of
Education
34 CFR Part 685
William D. Ford Federal Direct Loan
Program; Proposed Rule

48857
48858 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules

DEPARTMENT OF EDUCATION telecommunications device for the deaf Direct Loan Servicer. In particular, it is
(TDD) may call the Federal Information imperative that borrowers receive
34 CFR Part 685 Relay Service (FIRS) at 1–800–877–8339 disclosure information and loan
between 8 a.m. and 8 p.m., Eastern time, servicing information shortly after the
RIN 1840–AC22
Monday through Friday. loan is disbursed. Further, Direct PLUS
William D. Ford Federal Direct Loan Loan borrowers enter repayment when
SUPPLEMENTARY INFORMATION:
Program the loan is fully disbursed and the
Background Department must receive disbursement
AGENCY: Department of Education. The Secretary proposes to amend the information in a timely manner in order
ACTION: Notice of proposed rulemaking. Direct Loan Program regulations (34 to establish repayment terms. Therefore,
CFR Part 685), to improve the program in these regulations, the Secretary
SUMMARY: The Secretary of Education proposes to require schools to submit
based on experience gained during the
proposes to amend the William D. Ford origination records, promissory notes,
first year of operation. These regulations
Federal Direct Loan (Direct Loan) and disbursement records (both initial
propose programmatic changes that the
Program regulations. The proposed and subsequent), to the Direct Loan
Secretary believes would improve
regulations would apply to loans under Servicer no later than 30 days following
services to student and parent
the Federal Direct Stafford/Ford Loan the disbursement of a Direct Loan.
borrowers, increase institutional
(Direct Subsidized Loan) Program, the Further, this change would also serve to
flexibility, and enhance the
Federal Direct Unsubsidized Stafford/ improve the Department’s
Department’s administrative and fiscal
Ford Loan (Direct Unsubsidized Loan) administrative and fiscal oversight
oversight capabilities.
Program, the Federal Direct PLUS Loan capabilities of the program.
The Secretary proposes to revise the
(Direct PLUS Loan) Program, and the While program experience now
current definitions of school origination
Federal Direct Consolidation Loan indicates that establishing firm
option 1, school origination option 2,
(Direct Consolidation Loan) Program, deadlines for the submission of
and standard origination found in origination records, promissory notes,
collectively referred to as the Direct
§ 685.102 to increase program flexibility and disbursement records is necessary,
Loan Program. These proposed
for schools and the Secretary. Under the the Secretary is sensitive to the potential
regulations would provide schools with
proposed rules, with the approval of the need for flexibility in this area. During
more flexibility in performing
Secretary, schools would be permitted the first year of a school’s participation
origination functions, and clarify the
to customize the origination process in the Direct Loan Program, the school
date of loan origination. These proposed
based on individual needs. must make changes to its administrative
regulations also would set timelines for
These proposed regulations would functions, implement new computer
the submission of promissory notes,
also clarify the date on which a Direct systems, and become familiar with
disbursement records, and origination
Loan is originated. For schools Direct Loan Program requirements. At
records. Finally, the regulations being
originating under school origination times, the transition to Direct Loans may
proposed would address the repayment
option 1 or option 2, the date of loan seem complex to these schools,
plans available for the consolidation of
origination would be the earlier of: The particularly in the initial stages of the
a single Federal Family Education
date the promissory note is printed or transition. The Secretary assures schools
(FFEL) Loan Program loan into the
the date the origination record is that, during their first year of
Direct Loan Program.
accepted by the Secretary. For a school participation in the Direct Loan
DATES: Comments on the proposed that participates under standard
regulations must be received on or Program, these obstacles will be
origination, the date of loan origination considered in determining the
before October 31, 1995. would be the date the origination record Secretary’s position regarding an
ADDRESSES: All comments concerning is accepted by the Secretary. Beginning institution’s compliance with program
these proposed regulations should be with the 1996–1997 loan year, regulations. However, the proposed
addressed to Ms. Katrina Ingalls, U.S. originating schools will be able to regulation to require schools to submit
Department of Education, P.O. Box generate a print date on the promissory origination records, promissory notes,
23272, Washington, DC 20026–3272. note. This print date on the promissory and initial and subsequent
Comments may also be sent via the note is a new step intended to establish disbursement records to the Direct Loan
internet to: direct–[email protected]. an alternative method to document the Servicer no later than 30 days following
To ensure that public comments have loan origination date. This change will the disbursement of a Direct Loan is
maximum effect in developing the final increase program flexibility. If a school particularly critical at the end of the
regulations, the Department urges that originates a loan and prints the Federal fiscal year (September 30th). To
each comment clearly identify the promissory note showing the print date ensure program integrity and facilitate
specific section or sections of the and the student’s eligibility changes audit review, the Secretary will require
regulations that the comment addresses before the loan origination record is that all documents for loans made
and that comments be in the same order transmitted to the Secretary, the school during a fiscal year be submitted no
as the regulations. may make a disbursement to the later than 30 days following the end of
Comments that concern information borrower following the late the Federal fiscal year.
collection requirements must be sent to disbursement guidelines. This change The Secretary is proposing to revise
the Office of Management and Budget at promotes flexibility in processing loans the repayment plan regulations to reflect
the address listed in the Paperwork near the end of a student’s period of the Secretary’s current operational
Reduction Act section of this preamble. enrollment. practice regarding the repayment plans
A copy of those comments may also be As a result of administering the available to a FFEL Program loan
sent to the Department representative program for one year, the Secretary is borrower consolidating only one FFEL
named in the preceding paragraph. convinced that services to borrowers Program loan into the Direct Loan
FOR FURTHER INFORMATION CONTACT: Ms. would be substantially improved by Program. Under the proposed
Katrina Ingalls. Telephone: (202) 708– requiring the timely submission of regulations, borrowers who consolidate
9406. Individuals who use a certain program data by schools to the only one FFEL Program loan into the
 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules 48859

Direct Loan Program would be required authority to modify the functions a promissory note or the date that the
to initially choose a repayment plan school performs to best meet the needs origination record is accepted by the
other than the standard repayment plan. of the program. Secretary.
The Secretary is considering The Secretary also proposes to amend
establishing requirements for foreign Section 685.201 Obtaining a Loan
the regulations to require schools to
school participation in the Direct Loan Paragraphs (a)(2) and (b) of this submit the promissory note,
Program. Due to the nature of the Direct section, which describe the school’s disbursement record (original and
Loan Program, the Secretary believes responsibility to perform certain subsequent), and origination record no
that additional fiscal oversight and functions to process a Direct Loan, later than 30 days of the date of
administrative requirements may be would be modified to provide the disbursement of loan funds. Requiring
warranted for foreign schools. The flexibility needed by schools to allow the timely submission of program data
Direct Loan Program is unique among them, with the concurrence of the would result in improved services to
the financial aid programs with respect Secretary, to tailor the process to borrowers and would also enhance the
to its funds disbursement processes and accommodate their individual needs. Department’s administrative and fiscal
requirements. Because there is no oversight capabilities.
authorized limit to the amount of funds Section 685.208 Repayment Plans
that schools may draw down in the For purposes of consolidating one Executive Order 12866
Direct Loan Program, the Department FFEL Program loan into a Federal Direct 1. Assessment of Costs and Benefits
must rigorously oversee the funds Consolidation Loan, the Secretary
disbursement process. To prevent proposes to modify the available These proposed regulations have been
potential program abuse, the Secretary repayment plan options. Borrowers reviewed in accordance with Executive
is committed to the careful monitoring consolidating one FFEL Program loan Order 12866. Under the terms of the
of the drawdown of funds to schools would not be permitted to initially order the Secretary has assessed the
and then disbursement to students. To choose the standard repayment plan; potential costs and benefits of this
minimize potential risks to borrowers however, they could choose the proposed regulatory action.
and taxpayers, the Secretary is extended, graduated, or income The potential costs associated with
considering additional school contingent repayment plan. This the proposed regulations are those
participation requirements for those proposed change appears in resulting from statutory requirements
foreign schools interested in § 685.208(a)(1) and (2), and and those determined by the Secretary
participating in the Direct Loan § 685.215(h)(2). to be necessary for administering the
Program. Therefore, the Secretary Title IV, HEA programs effectively and
solicits comments and supporting Section 685.210 Choice of Repayment efficiently. Burdens specifically
arguments on what, if any, additional Plans associated with information collection
standards should be established for In § 685.210(a), a new paragraph requirements, if any, are explained
foreign schools that participate in the would be added advising the borrower elsewhere in this preamble under the
Direct Loan Program. The Secretary that the Secretary will designate the heading of Paperwork Reduction Act of
invites comments and supporting extended repayment plan if a FFEL 1995.
arguments on the potential financial Program loan borrower consolidating In assessing the potential costs and
risks, as well as benefits of admitting only one FFEL Program loan into the benefits—both quantitative and
foreign schools into the Direct Loan Direct Loan Program does not select a qualitative—of these proposed
Program. Finally, the Secretary requests repayment plan. regulations, the Secretary has
comments and supporting statements determined that the benefits of the
Section 685.215 Consolidation proposed regulations justify the costs.
concerning the potential losses or
benefits to students related to foreign The Secretary proposes that The Secretary has also determined
school participation in the Direct Loan § 685.215(h), which discusses that this regulatory action does not
Program. repayment plans available to borrowers unduly interfere with State, local, and
of Direct Consolidation Loans, be tribal governments in the exercise of
Proposed Regulatory Changes amended by adding a new paragraph. their governmental functions.
The following sections summarize the This new paragraph would provide that, To assist the Department in
major changes in this notice of proposed for purposes of consolidating only one complying with the specific
rulemaking: FFEL Program loan into a Federal Direct requirements of Executive Order 12866,
Consolidation Loan, borrowers may not the Secretary invites comment on
Section 685.102 Definitions whether there may be further
initially choose the standard repayment
School origination option 1, School plan. opportunities to reduce any potential
origination option 2, and Standard costs or increase potential benefits
origination: The Secretary proposes to Section 685.301 Origination of a Loan
resulting from these proposed
modify the definition of the specific by a Direct Loan Program School
regulations without impeding the
functions that a school must perform for The Secretary proposes to add a new effective and efficient administration of
school origination option 1, school paragraph to this section to clarify the the Title IV, HEA programs.
origination option 2 and standard date of origination. A school may only
origination. While the functions for the originate a loan while the student meets 2. Clarity of the Regulations
three levels would generally remain the borrower eligibility requirements. Executive Order 12866 requires each
unchanged, in certain circumstances Through the origination process, a agency to write regulations that are easy
schools would have some flexibility in school certifies a borrower’s eligibility to understand.
selecting the functions they would for a loan, the loan amount, and The Secretary invites comments on
perform. Any request to modify the anticipated disbursement dates. The how to make these regulations easier to
functions must be approved by the proposed rule provides that the date of understand, including answers to
Secretary. Further, the regulations loan origination would be the earlier of questions such as the following: (1) Are
would specify that the Secretary has the the date that the school prints the the requirements in the regulations
48860 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules

clearly stated? (2) Do the regulations disbursement records to the Secretary regarding these proposed regulations.
contain technical terms or other within 30 days of disbursement. Direct All comments submitted in response to
wording that interferes with their Loan Program loans are usually made these proposed regulations will be
clarity? (3) Does the format of the once each academic year to eligible available for public inspection, during
regulations (grouping and order of parent and student borrowers. and after the comment period, in room
sections, use of headings, paragraphing, Promissory notes and origination 3053, Regional Office Building 3, 7th
etc.) aid or reduce their clarity? Would records are submitted once for each and D Streets, SW., Washington, DC,
the regulations be easier to understand loan; funds are disbursed in at least two between the hours of 8:30 a.m. and 4
if they were divided into more (but installments. This Loan origination p.m., Monday through Friday of each
shorter) sections? (A ‘‘section’’ is information is needed to establish that week except Federal holidays.
preceded by the symbol ‘‘§ ’’ and a a legally-enforceable loan exists and to Assessment of Educational Impact
numbered heading; for example, service and collect that loan.
§ 685.215 Consolidation.) (4) Is the Annual reporting burden for this The Secretary requests comments on
description of the proposed regulations collection of information is estimated to whether the proposed regulations would
in the ‘‘Supplementary Information’’ average 0.3 burden hours for each of the require transmission of information that
section of this preamble helpful in the projected 1,986,857 loans. The total is being gathered by, or is available
understanding of the proposed annual reporting burden equals 59,606 from, any other agency or authority of
regulations? How could this description hours. the United States.
be more helpful in making the proposed Organizations and individuals List of Subjects in 34 CFR Part 685
regulations easier to understand? (5) desiring to submit comments on the
What else could the Department do to information collection requirements Administrative practice and
make the regulations easier to should direct them to the Office of procedure, Colleges and universities,
understand? Information and Regulatory Affairs, Education, Loan programs—education,
A copy of any comments that concern OMB, Room 10235, New Executive Reporting and recordkeeping
whether these proposed regulations are Office Building, Washington, DC 20503; requirements, Student aid, Vocational
easy to understand should also be sent Attention: Desk Officer for U.S. education.
to Stanley Cohen, Regulations Quality Department of Education. (Catalog of Federal Domestic Assistance
Officer, U.S. Department of Education, The Department considers comments Number: 84.268, William D. Ford Federal
600 Independence Avenue, SW., (Room by the public on this proposed Direct Loan Program)
5100 FB–10), Washington, DC 20202– collection of information in— Dated: September 13, 1995.
2241. • Evaluating whether the proposed Richard W. Riley,
collection of information is necessary Secretary of Education.
Regulatory Flexibility Act Certification for the proper performance of the The Secretary proposes to amend part
The Secretary certifies that these functions of the Department, including 685 of title 34 of the Code of Federal
proposed regulations would not have a whether the information will have Regulations to read as follows:
significant economic impact on a practical use;
substantial number of small entities. • Evaluating the accuracy of the PART 685—WILLIAM D. FORD
The small entities that would be Department’s estimate of the burden of FEDERAL DIRECT LOAN PROGRAM
affected by these regulations are the proposed collection of information,
institutions of higher education. Certain 1. The authority citation for part 685
including the validity of the
reporting, recordkeeping, and continues to read as follows:
methodology and assumptions used;
compliance requirements are imposed • Enhancing the quality, usefulness, Authority: 20 U.S.C. 1078a et seq., unless
on schools by the regulations. These and clarity of the information to be otherwise noted.
requirements, however, would not have collected; and 2. Section 685.102, paragraph (b) is
a significant impact on these • Minimizing the burden of the amended by revising the definitions of
institutions and would not impose collection of information on those who ‘‘School origination option 1,’’ ‘‘School
excessive regulatory burdens or require are to respond, including through the origination option 2,’’ and ‘‘Standard
unnecessary Federal supervision. use of appropriate automated, origination.’’
electronic, mechanical, or other
Paperwork Reduction Act of 1995 technological collection techniques or § 685.102 Definitions.
Section 685.301 contains an other forms of information technology; * * * * *
information collection requirement. As e.g., permitting electronic submission of (b) * * *
required by the Paperwork Reduction responses. School origination option 1: In
Act of 1995, (44 U.S.C. 3507(d)), the OMB is required to make a decision general, under this status the school
Department of Education has submitted concerning the collection of information performs the following functions:
a copy of this section to the Office of contained in these proposed regulations creates a loan origination record,
Management and Budget (OMB) for its between 30 and 60 days after transmits the record to the Servicer,
review. publication of this document in the prepares the promissory note, obtains a
Collection of information: Reporting Federal Register. Therefore, a comment completed and signed promissory note
loan origination and disbursement to OMB is best assured of having its full from a borrower, transmits the
records, and submitting promissory effect if OMB receives it within 30 days promissory note to the Servicer, receives
notes. of publication. This does not affect the the funds electronically, disburses a
The Department collects information deadline for the public to comment to loan to a borrower, creates a
regarding Direct Loan Program loan the Department on the proposed disbursement record, transmits the
origination. These regulations require regulations. disbursement record to the Servicer, and
postsecondary institutions participating reconciles on a monthly basis. The
in the Direct Loan Program to submit Invitation to Comment Servicer initiates the drawdown of
student and parent loan origination Interested persons are invited to funds for schools participating in school
records, promissory notes, and submit comments and recommendations origination option 1. The Secretary may
 Federal Register / Vol. 60, No. 182 / Wednesday, September 20, 1995 / Proposed Rules 48861

modify the functions performed by a promissory note and submit it to the (Authority: 20 U.S.C. 1087a et seq.)
particular school. Servicer, which makes a determination 6. Section 685.215 is amended by
School origination option 2: In as to whether the parent has an adverse revising paragraph (h)(1), redesignating
general, under this status the school credit history. Unless a school’s paragraph (h)(2) as paragraph (h)(3) and
performs the following functions: agreement with the Secretary specifies adding a new paragraph (h)(2) to read as
creates a loan origination record, otherwise, the school shall perform the follows:
transmits the record to the Servicer, following functions: A school
prepares the promissory note, obtains a participating under school origination § 685.215 Consolidation.
completed and signed promissory note option 2 shall draw down funds and * * * * *
from a borrower, transmits the disburse the funds. For a school (h) * * *
promissory note to the Servicer, participating under school origination
determines funding needs, initiates the (1) A borrower may not repay a Direct
option 1 or standard origination, the
drawdown of funds, receives the funds PLUS Consolidation Loan under the
Servicer initiates the drawdown of
electronically, disburses a loan to a income contingent repayment plan;
funds, and the school disburses the
borrower, creates a disbursement record, funds. (2) A borrower consolidating only one
transmits the disbursement record to the FFEL Program loan into the Direct Loan
* * * * * Program may not initially select the
Servicer, and reconciles on a monthly (Authority: 20 U.S.C. 1087 a et seq., 1091a)
basis. The Secretary may modify the standard repayment plan (described in
functions performed by a particular 4. Section 685.208 is amended by § 685.208(b).
school. revising paragraphs (a)(1) and (a)(2) to * * * * *
read as follows:
* * * * * 7. Section 685.301 is amended by
Standard origination: In general, § 685.208 Repayment plans. redesignating paragraphs (a)(5) and
under this status the school performs (a) General. (1) Except as provided in (a)(6) as paragraph (a)(6)and (a)(7),
the following functions: creates a loan § 685.215, a borrower may repay a respectively, adding a new paragraph
origination record, transmits the record Direct Subsidized Loan, a Direct (a)(5) and by adding a new paragraph (d)
to the Secretary, receives funds Unsubsidized Loan, a Direct Subsidized to read as follows:
electronically, disburses funds, creates a Consolidation Loan, or a Direct § 685.301 Origination of a loan by a Direct
disbursement record, transmits the Unsubsidized Consolidation Loan under Loan Program school.
disbursement record to the Secretary, the standard repayment plan, the
and reconciles on a monthly basis. The extended repayment plan, the graduated (a) * * *
Secretary prepares the promissory note, repayment plan, or the income (5) The date of loan origination is the
obtains a completed and signed contingent repayment plan. earlier of—
promissory note from a borrower, and (2) Except as provided in § 685.215, a (i) The date the promissory note is
initiates the drawdown of funds for borrower may repay a Direct PLUS Loan printed; or
schools participating in standard or a Direct PLUS Consolidation Loan (ii) The date the origination record is
origination. The Secretary may modify under the standard repayment plan, the accepted by the Secretary.
the functions performed by a particular extended repayment plan, or the * * * * *
school. graduated repayment plan. (d) Reporting to the Secretary. (1) A
(Authority: 20 U.S.C. 1087a et seq.) * * * * * school that originates a loan must
3. Section 685.201 is amended by (Authority: 20 U.S.C. 1087a et seq.) submit the promissory note, loan
revising paragraph (a)(2)introductory 5. Section 685.210 is amended by origination record, and initial and
text, and paragraph (b) to read as revising paragraph (a)(2) and by adding subsequent disbursement record to the
follows: a new paragraph (a)(3) to read as Secretary no later than 30 days
follows: following the date of disbursement. A
§ 685.201 Obtaining a loan. school must submit the loan origination
(a) * * * § 685.210 Choice of repayment plan. record and disbursement record to the
(2) If the student is eligible for a (a) * * * Secretary no later than 30 days
Direct Subsidized Loan or a Direct (2) If a borrower does not select a following the date of disbursement for
Unsubsidized Loan, the Secretary or the repayment plan, the Secretary each subsequent disbursement.
school in which the student is enrolled designates the standard repayment plan (2) A school that participates under
shall perform specific functions. Unless described in § 685.208(b) for the standard origination must submit the
a school’s agreement with the Secretary borrower, unless the borrower is initial and subsequent disbursement
specifies otherwise, the school shall consolidating only one FFEL Program record to the Secretary no later than 30
perform the following functions: loan. days following the date of disbursement.
* * * * * (3) If a borrower consolidating only A school must submit the disbursement
(b) Application for a Direct PLUS one FFEL Program loan into the Direct record to the Secretary no later than 30
Loan. To obtain a Direct PLUS Loan, the Loan Program does not initially select a days following the date of disbursement
parent shall complete the application repayment plan offered by the Secretary, for each subsequent disbursement.
and promissory note and submit it to the Secretary will designate the
extended repayment plan described in (Authority: 20 U.S.C. 1087a et seq.)
the school at which the student is
enrolled. The school shall complete its § 685.208(c) for the borrower. [FR Doc. 95–23300 Filed 9–19–95; 8:45 am]
portion of the application and * * * * * BILLING CODE 4000–01–P