Proposed Regulatory Language

Committee I -- Loans

Quick Fix: No

Origin: FED UP #17

Issue: Direct Loan - Rehabilitation of Loans

Regulatory Cite: 685.211(f)

Summary of Change:

Rehabilitation of a defaulted Direct Loan provides for the

removal of the default notation on a borrower's credit history
after the borrower makes 12 consecutive on-time, reasonable, and
affordable monthly payments. Currently, a borrower may
rehabilitate a defaulted Direct Loan on which a judgment has been
obtained. The proposed change to §685.211(f) would no longer
allow a borrower to rehabilitate a defaulted Direct Loan on which
a judgment has been obtained.

Change:

§685.211 Miscellaneous repayment provisions.

* * * * *

(f) Rehabilitation of defaulted loans. A defaulted Direct

Loan, except for a loan on which a judgment has been obtained,

is rehabilitated if the borrower makes 12 consecutive on-time,

reasonable, and affordable monthly payments. The amount of such

a payment is determined on the basis of the borrower's total

financial circumstances. If a defaulted loan is rehabilitated,

the Secretary instructs any credit bureau to which the default

was reported to remove the default from the borrower's credit

history.

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 Proposed Regulatory Language
Committee I - Loans

Quick Fix: No

Origin: ED

Issue: Direct Loan - Loan Limits

Regulatory Cite: §685.203(a) and (c)

Summary of Change:

The proposed change would clarify that (1) a borrower who is

enrolled in a one-year program of study may not borrow more than
the amounts allowed under the first-year undergraduate annual
loan limits, and (2) a borrower who is enrolled in a two-year
program of study may not borrow more than the amounts allowed
under the second-year undergraduate loan limits.

Change:

§685.203 Loan limits.

(a) Direct Subsidized Loans. (1) In the case of an

undergraduate student who has not successfully completed the

first year of a program of undergraduate education, the total

amount the student may borrow for any academic year of study

under the Federal Direct Stafford/Ford Loan Program in

combination with the Federal Stafford Loan Program may not exceed

the following:

(i) $2,625 for a program of study of at least a full

academic year in length.

(ii) For a one-year program of study with less than a full

academic year remaining, the amount that is the same ratio to

$2,625 as the --
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 Number of semester, trimester, quarter, or clock hours enrolled
Number of semester, trimester, quarter, or clock hours in academic year

(iii) For a program of study that is less than a full

academic year in length, the amount that is the same ratio to

$2,625 as the lesser of the --

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter, or clock hours in academic year
or
Number of weeks enrolled
Number of weeks in academic year

(2) In the case of an undergraduate student who has

successfully completed the first year of an undergraduate program

but has not successfully completed the second year of an

undergraduate program, the total amount the student may borrow

for any academic year of study under the Federal Direct

Stafford/Ford Loan Program in combination with the Federal

Stafford Loan Program may not exceed the following:

(i) $3,500 for a program of study of at least a full

academic year in length.

(ii) For a program of study with less than a full academic

year remaining, an amount that is the same ratio to $3,500 as the

--

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter, or clock hours in academic year

(3) In the case of an undergraduate student who has

successfully completed the first and second years of a program of

study of undergraduate education but has not successfully

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completed the remainder of the program, the total amount the

student may borrow for any academic year of study under the

Federal Direct Stafford/Ford Loan Program in combination with the

Federal Stafford Loan Program may not exceed the following:

(i) $5,500 for a program of study of at least an academic

year in length.

(ii) For a program of study with less than a full academic

year remaining, an amount that is the same ratio to $5,500 as the

–-

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter, or clock hours in academic year

(4) In the case of a student who has an associate or

baccalaureate degree which is required for admission into a

program and who is not a graduate or professional student, the

total amount the student may borrow for any academic year of

study may not exceed the amounts in paragraph (a)(3) of this

section.

* * * * *

(8) Except as provided in paragraph (a)(4) of this section,

an undergraduate student who is enrolled in a program that is one

academic year in length may not borrow an amount for any academic

year of study that exceeds the amounts in paragraph (a)(1) of

this section.

(9) Except as provided in paragraph (a)(4) of this section -

-
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 (i) An undergraduate student who is enrolled in a program

that is two academic years in length and who has not successfully

completed the first year of the program may not borrow an amount

for any academic year of study that exceeds the amounts in

paragraph (a)(1) of this section.

(ii) An undergraduate student who is enrolled in a program

that is two academic years in length and who has successfully

completed the first year of the program may not borrow an amount

for any academic year of study in the remaining portion of the

program that exceeds the amounts in paragraph (a)(2) of this

section.

* * * * *

(c) Additional eligibility for Direct Unsubsidized Loans.

(1) ***

(2) The additional amount that a student described in

paragraph (c)(1)(i) of this section may borrow under the Federal

Direct Unsubsidized Stafford/Ford Loan Program and the Federal

Unsubsidized Stafford Loan Program for any academic year of study

may not exceed the following:

(i) In the case of a student who has not successfully

completed the first year of a program of undergraduate education

--

(A) $4,000 for a program of study of at least a full

academic year in length.

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 (B) For a program of study with less than a full academic

year remaining, an amount that is the same ratio to $4,000 as the

--

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter, or clock hours in academic year

(C) For a one-year program of study with less than a full

academic year remaining, the amount that is the same ratio to

$4,000 as the --

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter, or clock hours in academic year

(D) For a program of study that is less than a full academic

year in length, an amount that is the same ratio to $4,000 as the

lesser of the --

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter, or clock hours in academic year
or
Number of weeks enrolled
Number of weeks in academic year

(ii) In the case of a student who has completed the first

year of a program of undergraduate education but has not

successfully completed the second year of a program of

undergraduate education --

(A) $4,000 for a program of study of at least a full

academic year in length.

(B) For a program of study with less than a full academic

year remaining, an amount that is the same ratio to $4,000 as the

--

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 Number of semester, trimester, quarter, or clock hours enrolled
Number of semester, trimester, quarter, or clock hours in academic year

(iii) In the case of a student who has successfully

completed the second year of a program of undergraduate education

but has not completed the remainder of the program of study --

(A) $5,000 for a program of study of at least a full

academic year in length.

(B) For a program of study with less than a full academic

year remaining, an amount that is the same ratio to $5,000 as the

-–

Number of semester, trimester, quarter, or clock hours enrolled

Number of semester, trimester, quarter, or clock hours in academic year

(iv) In the case of a student who has an associate or

baccalaureate degree which is required for admission into a

program and who is not a graduate or professional student, the

total amount the student may borrow for any academic year of

study may not exceed the amounts in paragraph (c)(2)(iii) of this

section.

* * * * *

(viii) Except as provided in paragraph (c)(2)(iv) of this

section, an undergraduate student who is enrolled in a program

that is one academic year in length may not borrow an amount for

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any academic year of study that exceeds the amounts in paragraph

(c)(2)(i) of this section.

(ix) Except as provided in paragraph (c)(2)(iv) of this

section –-

(A) An undergraduate student who is enrolled in a program

that is two academic years in length and who has not successfully

completed the first year of the program may not borrow an amount

for any academic year of study that exceeds the amounts in

paragraph (c)(2)(i) of this section.

(B) An undergraduate student who is enrolled in a program

that is two academic years in length and who has successfully

completed the first year of the program may not borrow an amount

for any academic year of study in the remaining portion of the

program that exceeds the amounts in paragraph (c)(2)(ii) of this

section.

* * * * *

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 Proposed Regulatory Language
Committee I - Loans

Quick Fix: No

Origin: FED UP #52

Issue: Direct Loan - Disability Discharge on

Consolidation Loans

Regulatory Cite: §685.212(a) and §685.220(l)

Summary of Change:

Under current regulations, a FFEL or Direct Loan program PLUS

loan is discharged if the student for whom the loan was obtained
dies. The proposed changes would extend this benefit to
consolidation loans by providing for discharge of all or a
portion of a consolidation loan if a parent borrower consolidates
a PLUS loan and the student for whom the underlying PLUS loan was
obtained then dies.

In general, current regulations provide that a FFEL or Direct

Loan program joint consolidation loan may be discharged only if
both borrowers meet the criteria for a loan discharge. There is
an exception to this policy if one of the borrowers qualifies for
a loan discharge based on school closure, false certification, or
unpaid refund, but the borrower’s spouse does not qualify for any
type of discharge. In such cases, a partial discharge of the
joint consolidation loan may be granted. The proposed change
would extend this exception and allow for partial discharge of a
joint consolidation loan when one of the borrowers dies or
becomes totally and permanently disabled, or is eligible for
teacher loan forgiveness.

Change:

§685.212 Discharge of a loan obligation.

(a) Death. (1) If a borrower (or the student on whose behalf

a parent borrowed a Direct PLUS Loan) dies, the Secretary

discharges the obligation of the borrower and any endorser to

make any further payments on the loan based on an original or

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certified copy of the borrower's (or student's in the case of a

Direct PLUS loan) death certificate.

(2) If an original or certified copy of the death

certificate is not available, the Secretary discharges the loan

only based on other reliable documentation that establishes, to

the Secretary's satisfaction, that the borrower (or student) has

died. The Secretary discharges a loan based on documentation

other than an original or certified copy of the death certificate

only under exceptional circumstances and on a case-by-case basis.

(3) In the case of a Direct PLUS Consolidation Loan, the

Secretary discharges the portion of the outstanding balance of

the consolidation loan attributable to any Direct PLUS Loan or

Federal PLUS Loan that was obtained on behalf of a student who

dies and that was repaid by the consolidation loan.

* * * * *

§685.220 Consolidation.

* * * * *

(l) Special provisions for joint consolidation loans. ***

* * * * *

(3) Discharge. (i) To obtain a discharge of a joint

Direct Consolidation Loan under §685.212, each borrower must

meet the requirements for one of the types of discharge

described in that section. If a borrower dies and the Secretary

receives the documentation described in §685.212(a), the

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Secretary discharges the portion of the outstanding balance of

the consolidation loan attributable to any of that borrower’s

loans that were repaid by the consolidation loan.

(ii) If a borrower meets the requirements for total and

permanent disability discharge under §685.212(b), the Secretary

discharges the portion of the outstanding balance of the

consolidation loan attributable to any of that borrower’s loans

that were repaid by the consolidation loan.

(iiiii) If a borrower meets the requirements for discharge

under §685.212(d), (e), or (f) on a loan that was consolidated

into a joint Direct Consolidation Loan and the borrower’s

spouse does not meet the requirements for any type of discharge

in §685.212, the Secretary discharges a the portion of the

consolidation loan equal to the amount of the loan that would

have been be eligible for discharge under the provisions of

§685.212(d), (e), or (f) as applicable, and that was repaid by

the consolidation loan.

(iv) If a borrower meets the requirements for loan

forgiveness under §685.212(h) on a loan that was consolidated

into a joint Direct Consolidation Loan, the Secretary repays the

portion of the outstanding balance of the consolidation loan

attributable to the loan that would be eligible for forgiveness

under the provisions of §685.212(h), and that was repaid by the

consolidation loan.
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* * * * *

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 Proposed Regulatory Language
Committee I - Loans

Quick Fix: No

Origin: FED UP (not on 12/14/01 list)

Issue: Direct Loan - Entrance and Exit Counseling

Regulatory Cite: §685.304

Summary of Change: The proposed changes would (1) ensure

consistency in counseling requirements across the three Title IV
loan programs and (2) clarify that a party other than the school
may provide the counseling.

Change:

§685.304 Counseling borrowers.

(a) Initial counseling. (1) Except as provided in

paragraph (a)(4) of this section, a school must conduct ensure

that initial counseling is conducted with each Direct Subsidized

or Direct Unsubsidized Loan borrower prior to making the first

disbursement of the proceeds of a Direct Subsidized or Direct

Unsubsidized Lloan to a student borrower unless the student

borrower has received a prior Direct Subsidized, Direct

Unsubsidized, Federal Stafford, Federal Unsubsidized Stafford,

or Federal SLS Loan.

(2) The initial counseling must be in person, by

audiovisual presentation, or by interactive electronic means.

In each case, the school must ensure that an individual with

knowledge of expertise in the title IV programs is reasonably

available shortly after the counseling to answer the student

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borrower's questions. As an alternative, in the case of a

student borrower enrolled in a correspondence program or a

study-abroad program approved for credit at the home

institution, the school may provide the student borrower may be

provided with written counseling materials prior to disbursing

before the loan proceeds are disbursed.

(3) In conducting the The initial counseling the school

must--

(i) Explain the use of a Master Promissory Note;

(ii) Emphasize to the borrower the seriousness and

importance of the repayment obligation the student borrower is

assuming;

(iii) Describe in forceful terms the likely consequences

of default, including adverse credit reports, garnishment of

wages, Federal offset, and litigation;

(iv) Provide the student borrower with general information

with respect to the average indebtedness of student borrowers

who have obtained Direct Subsidized or Direct Unsubsidized Loans

for attendance at that his or her school or in the student

borrower's program of study at that his or her school;

(v) Inform the student borrower as to the average

anticipated monthly repayment amount for these student borrowers

based on the average indebtedness provided under paragraph

(a)(3)(iv) of this section.

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 (vi) Emphasize that the student borrower is obligated to

repay the full amount of the loan even if the student borrower

does not complete the program, is unable to obtain employment

upon completion, or is otherwise dissatisfied with or does not

receive the educational or other services that the student

borrower purchased from the school.

(4) A school may adopt an alternative approach for initial

counseling as part of the school's quality assurance plan

described in §685.300(b)(9). If a school adopts an alternative

approach, it is not required to meet the requirements of

paragraphs (a)(1)-(3) of this section unless the Secretary

determines that the alternative approach is not adequate for the

school. The alternative approach must--

(i) Ensure that each student borrower subject to initial

counseling under paragraph (a)(1) of this section is provided

written counseling materials that contain the information

described in paragraph (a)(3) of this section;

(ii) Be designed to target those student borrowers who are

most likely to default on their repayment obligations and

provide them more intensive counseling and support services; and

(iii) Include performance measures that demonstrate the

effectiveness of the school's alternative approach. These

performance measures must include objective outcomes, such as

levels of borrowing, default rates, and withdrawal rates.

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 (5) A school that conducts If initial counseling is

conducted through interactive electronic means, a school must

take reasonable steps to ensure that each student borrower

receives the counseling materials, and participates in and

completes initial counseling.

(6) The school must maintain documentation substantiating

the school's compliance with this section for each student

borrower.

(b) Exit counseling. (1) A school must conduct ensure

that exit counseling is conducted with each Direct Subsidized or

Direct Unsubsidized Loan borrower shortly before the student

borrower ceases at least half-time study at the school.

(2) The exit counseling must be in person, by audiovisual

presentation, or by interactive electronic means. In each case,

the school must ensure that an individual with knowledge of

expertise in the title IV programs is reasonably available

shortly after the counseling to answer the student borrower's

questions. As an alternative, in the case of a student borrower

enrolled in a correspondence program or a study-abroad program

approved for credit at the home institution, the school may

provide the student borrower may be provided with written

counseling materials within 30 days after the student borrower

completes the program.

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 (3) If a student borrower withdraws from school without

the school's prior knowledge or fails to complete the exit

counseling as required, the school must provide exit counseling

must be provided either through interactive electronic means or

by mailing written counseling materials to the student borrower

at the student borrower's last known address within 30 days

after the school learns that the student borrower has withdrawn

from school or failed to complete the exit counseling as

required.

(4) In conducting tThe exit counseling, the school must--

(i) Inform the student borrower of the average anticipated

monthly repayment amount based on the student borrower's

indebtedness or on the average indebtedness of student borrowers

who have obtained Direct Subsidized or Direct Unsubsidized Loans

for attendance at that school or in the student borrower's

program of study at that school;

(ii) Review for the student borrower available repayment

options including the standard repayment, extended repayment,

graduated repayment, and income contingent repayment plans, and

loan consolidation;

(iii) Provide options Suggest to the student borrower

concerning those debt-management strategies that the school

determines would facilitate repayment by the student borrower;

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 (iv) Explain to the student borrower how to contact the

party servicing the student borrower's Direct Loans;

(v) Meet the requirements described in paragraphs

(a)(3)(i),(ii), and (iii) , and (vi) of this section;

(vi) Review with for the student borrower the conditions

under which the student borrower may defer or forbear repayment

or obtain a full or partial cancellation discharge of a loan;

(vii) Review with for the student borrower information on

the availability of the Department's Student Loan Ombudsman's

office; and

(viii) Require the student borrower to provide corrections

to the school’s records current information concerning name,

address, social security number, references, and driver's

license number and State of issuance, as well as the student

borrower's expected permanent address, the address of the

student borrower's next of kin, and the name and address of the

student borrower's expected employer (if known). The school must

provide this information to the Secretary within 60 days.

(5) The school must ensure that the information required in

paragraph (b)(4)(viii) of this section is provided to the

Secretary within 60 days after the student borrower provides the

information.

(56) A school that conducts If exit counseling is

conducted through interactive electronic means, a school must

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take reasonable steps to ensure that each student borrower

receives the counseling materials, and participates in and

completes exit counseling.

(67) The school must maintain documentation substantiating

the school's compliance with this section for each student

borrower.

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