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Code · REGISTER · 2006-11-01 · Office of Postsecondary Education, Department of Education · Rules and Regulations

Rules and Regulations. Final regulations

52,337 words·~238 min read·/register/2006/11/01/06-9027·

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BILLING CODE 6717-01-P 71 211 Wednesday, November 1, 2006 Rules and Regulations Part III Department of Education 34 CFR Parts 668, 673, 682 and 685 Federal Student Aid Programs; Final Rule DEPARTMENT OF EDUCATION 34 CFR Parts 668, 673, 682 and 685 RIN 1840-AC87 Federal Student Aid Programs AGENCY: Office of Postsecondary Education, Department of Education. ACTION: Final regulations. SUMMARY: The Secretary is amending the Federal Student Aid Program regulations to implement the changes to the Higher Education Act of 1965, as amended (HEA), resulting from the Higher Education Reconciliation Act of 2005 (HERA), Pub. L. 109-171, and other recently enacted legislation.
These final regulations reflect the provisions of the HERA that affect students, borrowers, postsecondary educational institutions, lenders, and other program participants in the Federal student aid programs authorized under Title IV of the HEA. Final regulations for the two new Title IV grant programs created by the HERA, the Academic Competitiveness Grant Program and the National Science and Mathematics Access to Retain Talent (SMART) Grant Program, are being published in a separate notice in the **Federal Register** .
DATES: *Effective Date:* These final regulations are effective December 1, 2006. FOR FURTHER INFORMATION CONTACT: Ms. Gail McLarnon, U.S. Department of Education, 1990 K Street, NW., 8th Floor, Washington, DC 20006. Telephone:
(202)219-7048 or via the Internet at: *Gail.McLarnon@ed.gov.* If you use a telecommunications device for the deaf (TDD), you may call the Federal Relay Service
(FRS)at 1-800-877-8339. Individuals with disabilities may obtain this document in an alternative format (e.g., Braille, large print, audiotape, or computer diskette) on request to the contact person listed under FOR FURTHER INFORMATION CONTACT . SUPPLEMENTARY INFORMATION: On August 9, 2006, the Secretary published in the **Federal Register** interim final regulations with a request for comments (71 FR 45666) for the Federal student financial assistance programs. The interim final regulations were effective on September 8, 2006, and implemented most of the changes made to the HEA by the HERA, enacted as part of the Deficit Reduction Act of 2005 (Pub. L. 109-171). The interim final regulations also implemented changes made to the HEA by: The Taxpayer-Teacher Protection Act of 2004 (Pub. L. 108-409); certain provisions of Pub. L. 107-139; the Pell Grant Hurricane and Disaster Relief Act (Pub. L. 109-66); the Student Grant Hurricane and Disaster Relief Act (Pub. L. 109-67); and the Emergency Supplemental Appropriations Act for Defense, the Global War on Terror, and Hurricane Recovery, 2006 (Pub. L. 109-234). The August 9, 2006, interim final regulations included a request for public comment. This document contains a discussion of the comments we received and revisions to the interim final regulations that we made as a result of these comments. In the interim final regulations, we stated that changes to the final regulations made after consideration of the public comments would be effective July 1, 2007. After considering the comments we received, we have decided not to make any substantive changes to the regulations. We have made some technical and conforming changes that were identified during the public comment period, but these technical changes are not subject to the delayed effective date under section 482 of the HEA, and therefore become effective 30 days after publication of these final regulations. Analysis of Comments and Changes The changes to the interim final regulations included in this document were developed through the analysis of comments received on the interim final regulations published on August 9, 2006. We received 55 comments on the interim final regulations. An analysis of the comments and of the changes in the regulations since publication of the interim final regulations follows. We group major issues according to subject, with appropriate sections of the regulations referenced in parentheses. Generally, we do not address technical and other minor changes and suggested changes the law does not authorize the Secretary to make. We also do not respond to comments pertaining to issues that were not within the scope of the interim final regulations. Definition of Telecommunications Course (§ 600.2) *Comments:* A commenter representing accrediting agencies believed that the reference to “regular and substantive interaction” in the definition of *telecommunications course* was inconsistent with Congress' intent to permit institutions maximum flexibility in the development and application of curriculum, and placed an undue burden on accrediting agencies. *Discussion:* The Secretary does not agree. The regulations do not restrict the curricula institutions may offer or the delivery modes they may use. Instead, the regulations reflect the clear distinction in the HERA between telecommunications courses and correspondence courses. This distinction is necessary because the HERA eliminated the circumstances under which telecommunications courses are considered correspondence courses, and excluded telecommunications courses from the “50 percent rule” limitations on institutional eligibility for Title IV, HEA program assistance, while retaining them for correspondence courses. Because of the changes made by the HERA, it is necessary to clarify the regulatory definition to distinguish telecommunications courses from correspondence courses. We have defined the term *telecommunications course* to conform to the usage of that term by the higher education community. None of the commenters proposed alternative language. The revised definition of the term *telecommunications course* does not impose any new requirements on accrediting agencies. Since 1998, section 496(n)(3) of the HEA has required the Secretary to specifically designate whether recognized accrediting agencies have accreditation of distance education within the scope of their recognition. Since 1994, accrediting agencies have also been required under § 602.22(a)(2)(iii) to provide prior approval for an institution's addition of courses or programs that represent a significant departure in the method of delivery from those previously offered. The interim final regulations do not modify these requirements, or add any new ones. *Changes:* None. *Comments:* While supporting our effort to draw a clear distinction between telecommunications and correspondence courses, one commenter thought that the language in the definition of *telecommunications course* was not specific enough to determine how much interactivity was sufficient. The commenter suggested that the definition be revised to include interaction among students and that we clarify that “regular” interaction means “not trivial” rather than “at specific intervals.” *Discussion:* The primary purpose of revising the definition of *telecommunications course* was to draw a clear distinction between telecommunications and correspondence courses. In drawing this distinction, we wanted to avoid as much as possible dictating a particular teaching method. The Secretary believes that requiring interaction among students, as well as between students and the instructor, would preclude certain teaching methods, such as self-paced instruction. We disagree with the commenter on the meaning of “regular” interaction. We believe the phrase “regular and substantive” means that the interaction should both take place at regular intervals and not be trivial. *Changes:* None. *Comments:* Two commenters representing financial aid administrators supported the change in the definition of the term *telecommunications course* but asked whether instruction by video cassette or disc recording would be considered to be telecommunications coursework. *Discussion:* We believe that the definition of *telecommunications course* adequately addresses the issue raised in the comments. The regulations provide that instruction by video cassette or disc recording is telecommunications coursework when the course involves the use of other telecommunications technologies for regular and substantive interaction between students and instructor, and when the course is offered onsite in the same award year. Otherwise, the use of video cassettes or disc recording is considered a correspondence course. *Changes:* None. Distance Education (§§ 600.2, 600.7, 600.51, 668.8 and 668.38) *Comments:* One commenter agreed that academic programs offered through any use of telecommunications or correspondence by foreign schools should not be eligible for Title IV, HEA program assistance. A few commenters did not believe that the HERA intended to deny eligibility under the Federal Family Education Loan
(FFEL)Program to a student who physically attends a foreign school but takes a portion of his or her program through telecommunications classes. The commenters felt that it is unfair to bar from FFEL eligibility a student who could fulfill a program requirement only through telecommunications coursework because the class is not offered at the foreign school the student attends. One commenter suggested that U.S. military personnel deployed outside of the U.S. may need to take courses via telecommunications instruction as part of their program of study. The commenters recommended that the definition of an eligible program for a foreign school be modified to permit the inclusion of telecommunications courses. Specifically, the commenters suggested the definition be changed to include a program at a foreign school that requires on-site attendance in traditional classroom or lab settings in at least one class while permitting one or more additional telecommunications classes, while excluding a program at a foreign school that permits the student to attend courses solely via telecommunications instruction. Alternatively, the commenters suggested that the effective date of the regulations be changed to allow foreign schools to deliver second and subsequent disbursements of pending loans on or after July 1, 2006 if the first disbursement was made prior to July 1, 2006. *Discussion:* The final regulations reflect the statutory requirements for an eligible program to include programs offered in whole or in part through telecommunications instruction by institutions in the United States with appropriate accreditation. The statute does not extend this eligibility to foreign schools and the Secretary does not have the authority to do so by regulation. In response to the comment regarding U.S. military personnel located abroad, it is the Secretary's understanding that such students do not usually attend foreign schools because they have access to programs offered by domestic institutions. Lastly, the effective date is established by the HERA and cannot be changed by regulation. *Changes:* None. Academic Year (§ 668.3) *Comments:* One commenter suggested that the Secretary change the definition of an academic year so that institutions can use the same definition as they use for grade level in the Stafford Loan Program. *Discussion:* The definition of an academic year in § 668.3 reflects the statutory definition in section 481(a) of the HEA, and the Secretary cannot change that definition. *Changes:* None. Direct Assessment Programs (§ 668.10) *Comments:* One commenter agreed that direct assessment programs offered at foreign schools should not be considered eligible for Title IV funding. *Discussion:* The Secretary appreciates the commenter's support. *Changes:* None. *Comments:* One commenter representing several higher education associations, and two commenters representing financial aid administrators, asked how the Department will evaluate satisfactory academic progress for direct assessment programs. *Discussion:* Students enrolled in direct assessment programs who are receiving Title IV HEA, program assistance must meet the same satisfactory academic progress requirements as do students attending other types of programs. However, since direct assessment programs may be designed in a variety of ways, we will determine how we will evaluate institutional compliance with satisfactory academic progress standards on a case-by-case basis as part of the initial eligibility review. *Changes:* None. *Comments:* One commenter thought that § 668.10(a)(3) was intended to require an institution to develop a protocol for equating programs administered under direct assessment rules with clock hours for credit hour measurements, but that the text in the interim final regulations was unclear. The commenter suggested some revised language. *Discussion:* The commenter is correct about the intent of the regulations. We agree that the commenter's proposed revised language is clearer than the language in the interim final regulations. *Changes:* We have revised § 668.10(a)(3) for clarity, but without changing the meaning. Treatment of Title IV Funds When a Student Withdraws (§§ 668.22, 668.35, and 668.173) Post-Withdrawal Disbursement Counseling *Comments:* Several commenters questioned why an institution must obtain the student's confirmation to apply loan funds to the student's account, but not to apply other Title IV program funds to that account. Several commenters questioned why an institution must obtain confirmation that a student wishes to receive grant funds as a direct disbursement. Commenters noted that the HERA provision that changed the post-withdrawal disbursement requirements addressed confirmation of receipt of loan funds, but not grant funds. *Discussion:* As in the past, § 668.164(d)(1) and (d)(2) require an institution to obtain a student's authorization (or a parent's authorization in the case of a parent PLUS loan) to credit the student's account with any Title IV, HEA funds for charges other than tuition, fees, and room and board if the student contracts with the institution for other services. An institution may obtain such an authorization from a student or parent at any time. The HERA added a new provision that goes beyond the pre-existing requirements in § 668.164(d)(1) and (d)(2) to require an institution to obtain confirmation from a student (or a parent in the case of a parent PLUS Loan) before making any post-withdrawal disbursement of loan funds. This confirmation cannot be made until the need for the post-withdrawal disbursement has been determined, i.e., after the student withdraws. This change ensures that a student or a parent has an opportunity after the student's withdrawal to decline all or a part of the loan, thus eliminating or reducing his or her loan debt. The Secretary did not add a similar change to the regulations for grant funds because she believes the requirements of § 668.164(d)(1) and (d)(2) are sufficient to control the application of grant funds to a student's account. The requirement in § 668.164(g)(3)(i) that an institution obtain confirmation that a student wishes to receive a post-withdrawal direct disbursement of grant funds is not new. Students are provided with an opportunity to refuse direct disbursements of grant funds so that they may preserve the amount of their grant eligibility if they return to school within the award year. *Changes:* None. *Comments:* Several commenters felt that the interim final regulations did not clearly explain how the requirements in § 668.22 are applied in concert with the regulations for making a late disbursement (§ 668.164(g)(3)) and for notifying a student, or parent (for a parent PLUS Loan), to provide that student or parent an opportunity to cancel a loan when the institution credits the student's account with FFEL, Direct Loan, or Perkins Loan program funds (§ 668.165(a)(2)). Many commenters believed a conforming amendment was needed to clarify whether § 668.165(a)(2) applies in the case of a post-withdrawal disbursement. *Discussion:* The new confirmation requirements do not apply to late disbursements made to students who did not withdraw. Section 668.164(g)(3)(i) requires an institution to make any post-withdrawal disbursement due to a student who withdraws during a payment period or period of enrollment in accordance with the new post-withdrawal disbursement procedures. However, the new post-withdrawal disbursement requirements do not apply to late disbursements made to students who successfully complete the payment period or period of enrollment (§ 668.164(g)(3)(ii)) or to students who do not withdraw, but cease to be enrolled as at least half-time students (§ 668.164(g)(3)(iii)). The commenters are correct that a conforming amendment to § 668.165(a)(2) is necessary. For students who withdraw and are due a post-withdrawal disbursement, the new post-withdrawal disbursement procedures in § 668.22 supersede the provisions in § 668.165(a)(2) that require an institution to notify a student or parent of loan funds that are credited to a student's account. Because the new post-withdrawal disbursement procedures require an institution to obtain a student's confirmation (or a parent's confirmation in the case of a parent PLUS Loan), the institution does not have to notify the student or parent again when the institution credits the loan funds to the student's account after it receives the borrower's confirmation. The notification requirement in § 668.165(a)(2) still applies in all other cases when an institution credits loan funds to a student's account. *Changes:* The Secretary has revised § 668.165(a)(2) to make it clear that an institution is not required to notify a student or parent of loan funds that are credited to a student's account for students who withdraw and are due a post-withdrawal disbursement. *Comments:* Several commenters noted that requiring an institution to provide notification of the outcome of a post-withdrawal disbursement request “electronically or in writing” is redundant, because “in writing” means through conventional mailing methods or electronically. *Discussion:* The commenters are correct. *Changes:* The reference to electronic notification has been removed from § 668.22(a)(5)(iii)(E). Withdrawals From Clock Hour Programs *Comments:* One commenter supported the new regulatory provisions governing the Return of Title IV Funds in the case of clock hour programs. One commenter felt that the regulations should allow an institution to determine the percentage of aid earned by a student who withdraws and has completed more clock hours than he or she was scheduled to complete by using the completed hours, rather than the scheduled hours. The commenter noted that this was consistent with the previous policy for students withdrawing from clock-hour programs. *Discussion:* Prior to the enactment of the HERA, either completed hours or scheduled hours were used to determine earned aid for a student who withdrew from a clock-hour program. However, the HERA changed the law to allow the use of scheduled hours only. *Changes:* None. Grant Overpayment Requirements *Comments:* One commenter suggested that the regulations be modified to clarify that the provision that a student is not required to return an original grant overpayment amount of $50 or less applies on a Title IV, HEA program-by-program basis. *Discussion:* The Secretary agrees with the commenter. *Changes:* Section 668.22(h)(3)(ii)(B) has been revised to make it clear that the provision that a student is not required to return an original grant overpayment amount of $50 or less applies on a Title IV, HEA program-by-program basis. *Comments:* Several commenters asked the Department to raise to $50 the $25 de minimis amount for overpayments in the Academic Competitiveness Grant
(ACG)and National SMART grant programs and other Title IV programs to match the de minimis grant overpayment amount for students who withdraw, which was raised to $50 by the HERA. *Discussion:* The Secretary does not agree that the amounts should correspond. The $25 de minimis standard used in the regulations is based upon the Department's determination of the amount that is cost effective for the Department to collect on outstanding balances owed to the Department. We are able to successfully pursue collections of $25 or higher with Internal Revenue Service
(IRS)offsets and other methods. *Changes:* None. Waiver of Grant Overpayment for Students Affected by a Disaster *Comments:* One commenter felt that the regulatory language applying the waiver of grant overpayment for students affected by a disaster to students “whose withdrawal ended within the award year during which the designation occurred or during the next succeeding award year” was unclear. The commenter asked the Secretary to clarify that students remain eligible for the grant overpayment waiver even if they do not return to the same institution in the following year. *Discussion:* An otherwise eligible student qualifies for the waiver if he or she withdraws during the award year during which the major disaster designation occurred or during the next succeeding award year, if the student withdrew because of the major disaster. *Changes:* Section 668.22(h)(5)(iii) has been revised to clarify that the grant overpayment waiver applies to students whose withdrawal due to a disaster occurred, rather than ended, within the award year during which the designation occurred or during the next succeeding award year. Order of Return of Grant Funds *Comments:* One commenter felt that the regulations should be changed to make it clear that an institution will not have to return funds to both the ACG and National SMART Grant programs for the same withdrawal. *Discussion:* Because an institution may opt to use the period of enrollment, rather than the payment period, to perform a Return of Title IV Funds calculation for a student who withdraws from a non-standard term or non-term program, it is possible, although highly unlikely, that both an ACG and a National SMART Grant could be disbursed (or scheduled to be disbursed) to a student for the same period. In such a case, funds from both the ACG and National SMART Grant programs may need to be returned for the same withdrawal. *Changes:* None. Return of Funds Within 45 Days *Comments:* One commenter felt that the Secretary should extend the other deadlines under § 668.22 from 30 days to 45 days to correspond to the extension of the maximum amount of time an institution has to return unearned funds for which it is responsible. The commenter felt this extension should also be applied to notifications to students for post-withdrawal disbursements and notifications to students of Title IV grant overpayments resulting from withdrawal. The commenter asserted that a uniform deadline makes sense because the same Return of Title IV Funds process leads up to all three requirements, and consistency would help ensure compliance. *Discussion:* Institutions have previously indicated that they needed an extension of the former 30-day return deadline to provide additional time to perform the administrative functions necessary to return the funds. The actual calculation of earned funds is not time consuming. The Secretary believes that providing institutions with over four weeks to enter information from their records and calculate the amount to be returned is more than sufficient. With regard to the request that the Secretary extend the 30-day deadlines for notifications to students, the Secretary does not believe it is in the best interest of students to extend these deadlines merely for consistency's sake. The Secretary believes that the sooner an institution attempts to contact these students, the more likely it is that the institution will reach the students. *Changes:* None. Student Debts Under the HEA and to the U.S. (§ 668.35) *Comments:* Several commenters suggested that § 668.35(e)(3), which governs the amount of an overpayment that renders a student ineligible for additional Title IV, HEA program assistance, be changed from $25 to $50 to be consistent with the new statutory requirement governing repayment of grant funds under the return of Title IV aid provisions. *Discussion:* The Secretary disagrees with the commenters. In 2002, we published final regulations to make the treatment of overpayments consistent in the Title IV, HEA programs, including incorporating the de minimis amount concept that applied to grant overpayments under the return to Title IV aid requirements. We decided to use the $25 de minimis standard for consistency and simplicity, and because it is cost effective. We do not believe it is appropriate to raise the de minimis amount applicable to overpayments when the Department has the tools and resources available to collect these amounts. However, as a result of the change in the minimum amount of a grant repayment for which a student is responsible under the return of Title IV aid provisions from $25 to $50, we are amending § 668.35(e) to clarify that a student who owes a grant overpayment of $50 or less that is not a remaining balance and is a result of the return of Title IV aid calculation is eligible to receive additional Title IV, HEA program assistance. *Changes:* We have added a new paragraph
(4)to § 668.35(e) to clarify that a student who owes a grant overpayment of $50 or less under the circumstances explained above is eligible to receive additional Title IV, HEA program assistance. Estimated Financial Assistance (§§ 673.5, 682.200, and 685.102) *Comments:* One commenter suggested that we add benefits paid under Section 903 of Pub. L. 96-342 (Educational Assistance Pilot Program) that is currently in the definition of *estimated financial assistance* in §§ 682.200(b) and 685.102(b) to the definition of *estimated financial assistance* in § 673.5(c). The commenter also suggested that we add language in § 682.200(b)(1)(iv), which includes in the definition of *estimated financial assistance* benefits paid under the Veteran's Affairs Educational Assistance Pilot Program and language from § 685.102(b)(2)(ii), which excludes from estimated financial assistance the amounts of Federal Perkins Loan and Federal Work-Study funds that the student has declined. Another commenter requested that the definition of *estimated financial assistance* in all three sections be modified to exclude any alternative or private loans not certified by the institution. This commenter suggested that only those loans that the institution is aware the student is receiving should be included in the definition of *estimated financial assistance* . An additional, similar comment was received suggesting that language be added to the definitions in all three sections to specifically state that only benefits that an institution is aware of must be considered estimated financial assistance. *Discussion:* Although the list of individual veterans' education benefits in each of the three sections that define *estimated financial assistance* is not all inclusive, the Secretary agrees with the first commenter that, for consistency, benefits paid under section 903 of Pub. L. 96-342 (Educational Assistance Pilot Program) should be included in § 673.5(c). However, it would be redundant to specifically exclude from the definition of *estimated financial assistance* in § 673.5(c) the amounts of Federal Perkins Loan and Federal Work-Study funds that the student has declined. Section § 673.5 defines the term *estimated financial assistance* for the purpose of determining eligibility for campus-based funds. It would not make sense to exclude campus-based funds declined by a student from the list of items used to determine that student's eligibility for those campus-based funds. If a student declines funds from a campus-based program, the amount of those declined funds would not be used to determine eligibility for campus-based funds. With respect to the proposal to define *estimated financial assistance* as including only loans of which the institution is aware, we note that, under the administrative capability guidelines in § 668.16(b) and (f), an institution must have a mechanism in place for obtaining and reviewing all information it receives that has a bearing on a student's eligibility for Title IV, HEA assistance. The institution must communicate this information to the individual designated to administer the Title IV programs at the institution. In light of this requirement, we believe that it is unlikely that a student will be receiving loans of which the institution is not aware. *Changes:* The definition of *estimated financial assistance* in § 673.5(c)(1)(ix) has been revised to include benefits paid under section 903 of Pub. L. 96-342 (Educational Assistance Pilot Program). A technical change has also been made to correct the reference in § 685.102(b)(1)(ix) from “paragraph (2)(iii)” to “paragraph (2)(iv)”. Military Deferment (§§ 674.34, 682.210(t), 682.211(i) and 685.204) *Comments:* One commenter recommended that we extend eligibility for the new military deferment established by the HERA to Perkins Loans disbursed before July 1, 2001 if the borrower received at least one Perkins Loan first disbursed on or after July 1, 2001. *Discussion:* Section 8007(f) of the HERA specifies that the military deferment applies to loans “for which the first disbursement is made on or after July 1, 2001.” The Secretary does not have the authority to extend eligibility for the military deferment to loans for which the first disbursement was made before July 1, 2001. *Changes:* None. *Comments:* Some commenters asked if a qualified borrower who experiences multiple deployments could receive separate deferments for each of his or her eligible Perkins, FFEL and Direct Loan program loans, as long as each deferment period did not last longer than the three-year maximum. *Discussion:* The three-year maximum for the military deferment applies to each loan, not to the borrower. If a borrower receives a military deferment on a loan for three years, or receives multiple military deferments on a loan that add up to three years, that loan no longer qualifies for a military deferment. If the borrower goes back to school, obtains more Title IV loans, and then is called back to active duty, the new loans would qualify for up to three years of military deferment. However, the older loan that has already been in a military deferment for the three-year maximum would not qualify for a military deferment. *Changes:* None. *Comments:* Several commenters recommended that we confirm that a lender has the authority to grant a mandatory administrative forbearance, as provided for in § 682.211(i), on a borrower's pre-July 1, 2001 loans, if the borrower qualifies for a military deferment on loans that were first disbursed on or after July 1, 2001. *Discussion:* FFEL lenders are required to grant mandatory administrative forbearances when notified by the Secretary that exceptional circumstances exist, such as a local or national emergency or a military mobilization. Some borrowers may qualify for a military deferment on loans first disbursed on or after July 1, 2001 and also may qualify for a mandatory administrative forbearance on loans first disbursed before July 1, 2001. However, not all borrowers who qualify for a military deferment necessarily qualify for a mandatory administrative forbearance. *Changes:* None. *Comments:* Several commenters recommended that we change the name of the prior military deferment that is available to borrowers with loans made before July 1, 1993, to the “Armed Forces deferment”, to avoid confusion with the new military deferment enacted by the HERA. *Discussion:* The FFEL and Direct Loan Public Service Deferment Request forms do not use the term “military deferment” to refer to the pre-July 1, 1993 military deferment mentioned in the comments. Instead, these forms refer to borrowers who are “on active duty in the Armed Forces of the United States.” These forms are the primary source of information to borrowers on the prior military deferment. Accordingly, we do not believe that there will be any significant confusion among borrowers. Moreover, we believe that re-naming the old military deferment in the regulations serves no purpose. *Changes:* None. Perkins Loan Rehabilitation (§ 674.39) *Comments:* One commenter questioned the statutory basis for denying a borrower who has been convicted of, or has pled nolo contendere or guilty to, a crime involving fraud in obtaining the Perkins Loan the opportunity to rehabilitate the defaulted Perkins Loan. The commenter questioned the statutory basis for denying loan rehabilitation to such borrowers. The commenter also contended that institutions have no reasonable way of knowing whether a borrower has been convicted of, or has pled nolo contendere or guilty to, a crime involving fraud in obtaining a Perkins Loan. *Discussion:* Section 8021(a) of the HERA provides that a student who has been convicted of, or has pled nolo contendere or guilty to a crime involving fraud in obtaining Title IV, HEA program assistance is not eligible for additional Title IV assistance unless he or she has repaid the fraudulently obtained Title IV aid. If a borrower were permitted to rehabilitate a fraudulently obtained Perkins Loan under § 674.39 of the Perkins Loan program regulations, the borrower would regain eligibility for additional Title IV, HEA program assistance without having repaid the fraudulently obtained loan in full, as required by the HERA. We do not agree with the commenter's contention that an institution will not know if a borrower was found guilty of fraud. The institution would almost certainly be involved in any legal proceedings relating to a Perkins Loan that was fraudulently obtained from that institution. *Changes:* None. Definition of Satisfactory Repayment Arrangement (§§ 682.200 and 685.102) *Comments:* Several commenters pointed out that the standard for an on-time payment for purposes of rehabilitating a loan is now different from the standard for an on-time payment for purposes of making satisfactory repayment arrangements on a defaulted loan to regain Title IV, HEA program assistance eligibility. Under the rehabilitation rules, an on-time payment is a payment made within 20 days of the due date. Under the satisfactory repayment arrangement rules, an on-time payment is a payment made within 15 days of the due date. Since some borrowers make satisfactory repayment arrangements and attempt loan rehabilitation concurrently, the commenters recommended using within 20 days of the due date as the on-time standard for both purposes. *Discussion:* The making of six consecutive monthly payments under satisfactory repayment arrangements restores Title IV, HEA program assistance eligibility to a defaulted borrower. We believe that the standard for on-time payments for purposes of regaining eligibility for Title IV, HEA program assistance should be stricter than the standard for rehabilitation of a defaulted loan. In addition, the on-time payment standard for borrowers who are in a regular repayment status requires that the payments be made within 15 days of the due date. We do not believe that it is appropriate to provide a longer period for on-time payments for borrowers who are in default on their loans than for borrowers who are current on their loans. Borrowers in default should be held to an on-time standard that is at least as strict as the standard applied to current borrowers, not rewarded with extra time to make a payment. Finally, we note that Congress did not apply the 20-day standard adopted for the loan rehabilitation program to borrowers in other situations. *Changes:* None. Eligible Borrower (§§ 682.201 and 685.200) *Comments:* Two commenters recommended adding language to §§ 682.201 and 685.200 to provide that a student borrower is not eligible for Title IV, HEA program assistance unless the borrower has repaid any Title IV, HEA program assistance obtained by fraud, if the student has been convicted of, or has pled nolo contendere or guilty to, a crime involving fraud in obtaining Title IV, HEA program assistance. These commenters also recommended that we revise § 682.201 to list the general eligibility requirements for all borrowers, and then the requirements that are specific to each loan type. The commenters felt that this approach would be more efficient and eliminate unnecessary redundancies. *Discussion:* The interim final regulations in §§ 668.32(m) and 668.35(i) include the new eligibility provision that prohibits a student borrower from obtaining Title IV, HEA program assistance unless the borrower has repaid any Title IV, HEA program assistance obtained by fraud. Section 682.201(a) and
(b)of the FFEL regulations stipulate that a Stafford Loan borrower and a student PLUS borrower, respectively, must meet the eligibility requirements in 34 CFR part 668 to qualify for a Stafford Loan. Similar references to the eligibility requirements in 34 CFR part 668 are in § 685.200(a)(1)(ii) and 685.200(b)(1)(ii) of the Direct Loan regulations. We believe that it would be redundant to include the language regarding the student eligibility requirements already outlined in part 668 in §§ 682.201 and 685.200. We disagree with the suggestion that restructuring § 682.201 would be more efficient. In developing the interim final regulations, we determined that the most efficient and easily understandable way to incorporate the changes mandated by the HERA into § 682.201 was to fit the changes into the existing structure of this section. We believe that it is easier to identify changes that we have made to a section if the overall structure of the section remains consistent with past versions of that section. Although some redundancy is unavoidable with this approach, we have reduced the redundancies through the use of cross-references. *Changes:* None. *Comments:* Several commenters noted that a student borrower may receive a Federal Direct Subsidized Stafford/Ford Loan or a Federal Direct Unsubsidized Stafford/Ford Loan and a FFEL Program Student PLUS Loan for the same period of enrollment. These commenters recommended revising the PLUS loan student eligibility requirements in both the FFEL and Direct Loan programs, to stipulate that a graduate or professional student's annual loan maximum eligibility for either a FFEL Stafford Loan or a Direct Stafford/Ford Loan, as applicable, must be determined before awarding the student a PLUS Loan. *Discussion:* The Secretary has previously issued guidance stating that a graduate or professional student's maximum annual Stafford Loan eligibility must be determined before the student applies for a PLUS Loan, although the student is not first required to borrower up to his or her maximum annual Stafford Loan limit before receiving a PLUS Loan. If a school participates in both the FFEL and Direct Loan programs, the school must determine the borrower's maximum annual Stafford Loan eligibility under the program the school is participating in for Stafford Loan purposes. We agree that this guidance should be incorporated in the regulations. *Changes:* We have revised §§ 682.201(b)(3) and 685.200(b)(1)(iv) to specify that a graduate or professional student's maximum annual Stafford Loan eligibility under either the Direct Loan or FFEL program must be determined before the student applies for a PLUS Loan. *Comments:* Two commenters recommended that § 682.201(d)(1) be revised to stipulate that a borrower who obtained a loan by identity theft or some other illegitimate means, or who obtained a loan for which he or she was ineligible, may not consolidate that loan. In addition, these commenters recommended that these borrowers not be permitted to consolidate loans for which the borrower is eligible until the loans for which the borrower was ineligible have been paid in full. Several commenters noted that new § 682.201(d)(2) states that a borrower may not consolidate a loan for which the borrower is wholly or partially responsible. Because our revision stipulating that a borrower who obtained a loan by identity theft or some other illegitimate means, or who obtained a loan for which he or she was ineligible, may not consolidate that loan was unclear, several commenters asked if the word “not” was inadvertently dropped from this section. *Discussion:* Section 682.201(d)(2) of the interim final regulations should have read, “A borrower may not consolidate a loan under this section for which the borrower is wholly or partially ineligible.” This language mirrors the existing provisions in § 685.211(e)(4) of the Direct Loan regulations. The revised § 682.201(d)(2) precludes a borrower who obtained a Title IV loan by identity theft, fraud, or some other illegitimate means from consolidating the ineligible loan. However, we do not believe that the HERA prohibits a borrower who has obtained loans for which the borrower is ineligible from consolidating loans for which the borrower is eligible, and we do not believe we have the authority to impose such a restriction by regulation. We believe the revision to § 682.201(d)(2) adequately addresses commenters' concerns and that revising § 682.201(d)(1) is unnecessary. *Changes:* We have replaced “responsible” with “ineligible” in § 682.201(d)(2). Eligibility for a Direct Consolidation Loan (§§ 682.201, 685.100 and 685.220) *Comments:* Two commenters recommended that we amend the FFEL and Direct Loan program regulations to clarify that, in the case of a borrower who wishes to consolidate a Federal Consolidation Loan that has been submitted for default aversion into the Direct Loan Program, the borrower must be delinquent or in default on the Federal Consolidation Loan at the time the borrower applies for the Direct Consolidation Loan. The commenters believed that the current regulatory language would allow a borrower to consolidate a Federal Consolidation Loan on which the borrower is current on making payments into a Direct Consolidation Loan, if the Federal Consolidation Loan had been submitted for default aversion at some time in the past. *Discussion:* We agree that Federal Consolidation Loans that are currently delinquent or in default may be consolidated into a Direct Consolidation Loan. However, we do not believe that it is necessary to amend the current regulatory language in §§ 682.201, 685.100 and 685.220 to state this requirement more explicitly. *Changes:* None. *Comments:* Several commenters urged the Secretary to clarify that borrowers with defaulted Federal Consolidation Loans are eligible to consolidate into the Direct Loan Program, without including another eligible loan, for the purpose of obtaining an income contingent repayment
(ICR)plan. Section 428C(a)(3)(B)(i)(IV) of the HEA provides this option for borrowers with delinquent Federal Consolidation Loans that have been submitted to the guaranty agency for default aversion. The commenters believed that this provision of the law, which was added by the HERA, was intended to provide the ICR option to borrowers who are either seriously delinquent or in default on their Federal Consolidation Loans. They also noted that the statutory language does not distinguish between non-defaulted and defaulted borrowers, and that any default claim filing would have been preceded by a default aversion submission. *Discussion:* The commenters are correct in reading the regulations implementing the changes made to section 428C(a)(3)(B)(i)(IV) of the HEA to allow a borrower to consolidate a single defaulted Federal Consolidation Loan into the Direct Loan Program for the purpose of obtaining an ICR plan. We believe that the regulatory language is sufficiently clear and that it is not necessary to revise the regulations to state this more explicitly. An otherwise eligible borrower may also consolidate a single Federal Consolidation Loan into the Direct Loan Program for the purpose of obtaining an income contingent repayment plan if the borrower has filed an adversary complaint in a bankruptcy proceeding seeking to have the Federal Consolidation Loan discharged, regardless of whether that Federal Consolidation Loan is current, delinquent, or in default. A borrower who is seeking to have a Federal Consolidation Loan discharged in bankruptcy should be treated the same as a borrower whose loan has been submitted for default aversion. A borrower who seeks to have a loan discharged in bankruptcy is clearly stating his or her intent not to repay the loan, but the bankruptcy filing precludes the submission of a default aversion request. Offering the Direct Loan Program ICR option to such a borrower provides an alternative to having the loan discharged in bankruptcy. *Changes:* None. Permissible Charges by Lenders to Borrowers (§ 682.202(a)) *Commments:* One commenter urged the Department to develop and publish regulations to restrict a lender's ability to charge an FFEL Program borrower an interest rate that is less than the rate specified in the HEA and the program regulations. The commenter believes that the regulations should require lenders to charge all borrowers the same rate to stop lenders from using interest rates to discriminate between institutions and borrowers based on inequitable criteria or to eliminate competition in the student lending market. *Discussion:* Section 427A(l) of the HEA provides that nothing shall prohibit a lender from charging a borrower an interest rate less than the rate specified in the statute. Accordingly, we do not have the statutory authority to require lenders to charge all borrowers the same interest rate. *Changes:* None. Insurance Premium and Federal Default Fees (§§ 682.202(d)(2) and 682.401(b)(10)) *Comments:* One commenter stated that the changes made to §§ 682.202(d)(2) and 682.401(b)(10) in the interim final regulations appear to eliminate the authority of a lender or guaranty agency, under § 682.209(f)(4), to charge a guarantee fee to a borrower who is refinancing a fixed rate PLUS Loan or a Supplemental Loans for Students
(SLS)Loan made prior to July 1, 1987 under § 682.209(f)(1). The commenter believes that the HERA provisions that changed the optional insurance premium to a mandatory Federal default fee did not remove a lender's or guaranty agency's authority to charge a guarantee fee in these cases. *Discussion:* We agree that the HERA did not remove a lender's or guaranty agency's authority to charge a guarantee fee if a borrower refinances a fixed rate PLUS or SLS loan made prior to July 1, 1987. However, we believe the existing language in § 682.209(f)(4), which specifically states that the refinancing lender may charge the borrower a guarantee fee in these circumstances, already addresses this issue. *Changes:* None. Loan Disbursement Through an Escrow Agent (§§ 682.207(b)(1)(iv) and 682.408(c)) *Comments:* Many commenters noted that the discussion in the preamble of the interim final regulations related to the new 10-day deadline for a lender to pay funds to an escrow agent for disbursement to a school differed from the regulatory language and requested clarification. The commenters indicated that the preamble stated that the transfer of loan funds must take place no earlier than 10 days prior to disbursement to the borrower, while the regulations indicated that the 10 days referred to the transfer of the loan funds to the school prior to the school's delivery of the funds to the borrower. A couple of commenters indicated that an additional change was needed to § 682.408(c)(2) to reflect the reduction from 21 to 10 days for disbursement through an escrow agent. Several commenters also recommended that § 682.408(c) be revised to provide that an escrow agent, as the lender's agent, could disburse loan funds directly to a borrower in a study-abroad program at the borrower's request. *Discussion:* We agree with the commenters that there is a difference between the discussions of the 10-day period in the preamble and in the interim final regulations. The language in the interim final regulations that states that the escrow agent shall transmit loan proceeds received from a lender to a school not later than 10 days after the agent receives the funds from the lender accurately reflects our policy on this issue. A revision to § 682.408(c)(2) reflecting the reduction from 21 to 10 days for disbursement through an escrow agent is unnecessary. Paragraph (c)(2) of § 682.408 was incorporated into new § 682.408(c) in the interim final regulations and the reduction from 21 to 10 days for disbursement through an escrow agent is reflected in this new paragraph. We agree with the commenters who recommended that § 682.408(c) be revised to provide that an escrow agent, as the lender's agent, could disburse loan funds directly to a borrower in a study-abroad program at the borrower's request. *Changes:* We have amended § 682.408(c) to clarify that an escrow agent may disburse Stafford Loan proceeds directly to a borrower who is attending a study-abroad program and who requests a direct disbursement from the lender. Due Diligence in Disbursing a Loan (§§ 682.207 and 682.604) *Comments:* Several commenters disagreed with our determination that PLUS Loan funds cannot be disbursed directly to a borrower enrolled in a study-abroad program or at a foreign school. The commenters believed that the “same terms and conditions” provision in section 428B(a)(2) of the HEA permits retention of the prior policy allowing direct disbursement of PLUS Loan funds. The commenters noted that, while the PLUS funds check must still be made co-payable to the institution and the borrower under 428B(c)(2) of the HEA, disbursing funds directly to a borrower to be endorsed and mailed to an institution may assist borrowers in paying for expenses while traveling to a foreign school. *Discussion:* Section 428B(a)(2) of the HEA does not authorize the Secretary to establish disbursement rules for PLUS Loans made to pay for attendance at foreign institutions or for students enrolled in study-abroad programs that are different from the rules for other FFEL Loans for attendance at those institutions. *Changes:* None. *Comments:* One commenter suggested that the regulations in § 682.207(b)(1)(v)(C)( *1* ) be revised to clarify that a lender or guaranty agency must verify a student's enrollment with the home institution, rather than with the foreign school, before making a direct disbursement to a student in a study-abroad program. *Discussion:* The Secretary agrees with the commenters. *Changes:* Section 682.207(b)(1)(v)(C)( *1* ) has been revised to clarify that a lender or guaranty agency may make a disbursement directly to a student enrolled in a study-abroad program only after verification of the student's enrollment with the home institution. *Comments:* One commenter did not agree that a lender or guaranty agency should be required to verify that a continuing student is still enrolled at the enrollment status for which the loan was certified before making a disbursement of Stafford Loan funds directly to a student at a foreign school. The commenter noted that, although the preamble stated that the verification requirements in the regulations are based on those in Dear Colleague Letter
(DCL)G-03-348, this requirement differs from that in the DCL, which simply required verification that the student was accepted for enrollment at the foreign school. The commenter felt that the institution should be responsible for notifying the lender if the borrower's enrollment status changed to less than half-time. A couple of commenters did not believe that the regulations should limit how a lender or guaranty agency may contact a foreign school or home institution to verify enrollment. The commenters felt that other forms of contact, in addition to contact by telephone or e-mail, such as facsimile, should be acceptable. One commenter was concerned that the regulations do not specify who at a foreign school may authorize a disbursement to be sent directly to a borrower. The commenter felt that this gap left the process open to abuse. *Discussion:* The intent of the statutory requirement is to require a confirmation that a student who is attending or plans to attend a foreign school is actually eligible to receive FFEL funds when those funds will not be sent to the school, but will be disbursed directly to a student. Therefore, we believe it is appropriate to require a lender or guaranty agency to confirm that a continuing student's enrollment (at least half-time) supports eligibility for the loan disbursement. As the commenter noted, a change in enrollment status would affect a student's eligibility for a loan only if the student has dropped below half-time enrollment. Therefore, the lender or guaranty agency need only confirm that the student is still enrolled at least half-time. Because of concerns with timeliness and security, the Secretary does not believe that all forms of contact are appropriate for the verification of enrollment. However, the Secretary does agree that contact by facsimile is acceptable. The Secretary agrees that not just any individual at a foreign school should be permitted to authorize a disbursement directly to a student. In DCL GEN-06-11, the Department asked foreign schools to use the modified institutional eligibility electronic application
(EAPP)to enter the names of the individuals who are authorized by the school to certify FFEL Loan applications. The DCL noted that the Department expects guaranty agencies or lenders to contact these individuals, whose names will be accessible in the Department's Postsecondary Education Participants Systems (PEPS), to verify enrollment. To the extent that a foreign school notifies a guaranty agency or lender of other individuals who are authorized to provide this information, the guaranty agency or lender must verify the information with at least one of the persons entered by the school on the EAPP that those officials are authorized to act on behalf of the institution in administering the FFEL Program. To allow the Secretary the flexibility to change this process in response to possible systems changes, the Secretary does not believe that the procedures for this contact should be specified in the regulations. However, the Secretary has decided that the regulations should require guaranty agencies and lenders to contact foreign schools in accordance with any procedures specified by the Department. *Changes:* Section 682.207(b)(2)(i) has been revised to permit a lender or guaranty agency to contact a foreign school via facsimile to verify a student's enrollment. In addition, § 682.207(b)(2)(i)(A) has been changed to require guaranty agencies and lenders to contact foreign schools in accordance with any procedures specified by the Secretary. Parental Leave and Working Mother Deferments (§§ 682.210(o) and
(r)and 685.204(d)(2)) *Comments:* Many commenters asked whether the deletion of section 428(b)(7)(A)(ii) from the HEA by the HERA effectively eliminated the parental leave and working mother deferments for borrowers with loans disbursed before July 1, 1993. The commenters are concerned that these deferments will not be available to an otherwise eligible borrower because the borrower must waive up to one month of the borrower's grace period in order to meet the eligibility criteria for the deferment. *Discussion:* The requirement that a borrower waive at least one month of the grace period so the borrower may be certified as having been enrolled at least half time within the six-month period preceding the deferment start date in § 682.210(o) applies only to the parental leave deferment. Deferments are a term and condition of the borrower's promissory note. The Congress, in making changes to the HEA historically, has not eliminated deferments already granted to a borrower as a term and condition of the borrower's loan, and it does not appear that Congress intended to do so in this case. Accordingly, otherwise eligible borrowers may continue to waive a month of the grace period, if necessary, in order to qualify for the parental leave deferment. *Changes:* None. Forbearance (§ 682.211) *Comments:* Several commenters suggested that we eliminate § 682.211(h)(3) of the FFEL regulations because section 8014(e) of the HERA amended the HEA to remove the requirement that the terms of a mandatory forbearance be in writing. *Discussion:* While we agree that the HERA eliminated the requirement that the terms of a mandatory forbearance agreement be in writing, we also note that the HERA requires that the terms of a mandatory forbearance agreed to by the lender and the borrower or endorser be documented by a confirmation notice sent by the lender to the borrower/endorser and by the lender recording the terms in the borrower's file. We believe that, with the exception of administrative forbearances in § 682.211(f), the same procedures should apply to all the forbearances. The interim final regulations amended § 682.211(b)(1) to reflect the new forbearance requirements. We believe that § 682.211(h)(3) should also be changed to reflect the new requirements that the lender send a notice to the borrower/endorser and include a notation in the borrower's file confirming the forbearance rather than simply eliminating the requirement for a written forbearance agreement. *Changes:* We have amended § 682.211(h)(3) to reflect these changes. Teacher Loan Forgiveness (§§ 682.215(c) and 685.217(c)) *Comments:* One commenter noted that the use of the word “either” with regard to a borrower qualifying for teacher loan forgiveness based on teaching special education in “either an eligible elementary or secondary school” could be misinterpreted. The commenter recommended removing the word “either” to make it clear that a borrower could combine teaching service in an eligible elementary school and an eligible secondary school to qualify for teacher loan forgiveness as a highly qualified special education teacher. *Discussion:* Use of the word “either” was not intended to imply that service as a highly qualified special education teacher in an eligible elementary school and service as a highly qualified special education teacher in an eligible secondary school could not be combined to qualify a borrower for teacher loan forgiveness. *Changes:* We have removed the word “either” from §§ 682.215(c)(3)(ii)(B), 682.215(c)(4)(ii)(B), 685.217(c)(3)(ii)(B), and 685.217(c)(4)(ii)(B). Payment of Special Allowance on FFEL Loans (§ 682.302) *Comments:* One commenter asked us to clarify the effective date for the change made by the HERA to the calculation of special allowance payments for PLUS Loans. *Discussion:* As reflected in the interim final regulations, PLUS Loans made after January 1, 2000 are no longer subject to the minimum 9 percent trigger for special allowance payments. In accordance with the effective date for the provision of the HERA that made this change, lenders will be paid special allowance on these loans for activity beginning April 1, 2006, which will be reflected on billing reports submitted to the Department after June 30, 2006. *Changes:* None. *Comments:* Some commenters, particularly from the FFEL industry, claimed that the regulations are impermissibly retroactive. In particular, these commenters claimed that the interim final regulations improperly applied the statutory changes made by the Taxpayer-Teacher Protection Act of 2004 (TTPA), and the HERA, to periods before those statutes became effective. The commenters pointed to the explanation of certain terms in § 682.302(f) as an example of the changes that they felt were being improperly applied retroactively. *Discussion:* The changes made to § 682.302 are not retroactive. Prior to the publication of the August 9 interim final regulations, the regulatory provisions in § 682.302 had not been updated since 1994, except for a change to reflect the 1993 statutory amendment that eliminated the 9.5 percent minimum special allowance payment
(SAP)rate on loans acquired with funds from a tax-exempt obligation originally issued on or after October 1, 1993. Thus, the prior regulations did not reflect guidance issued by the Department since 1993 to interpret the HEA and the regulations (DCL L-93-161 (November 1993), L-93-163 (December 1993), and L-96-186 (March 1996), FP-05-01 and FP-06-01) or the changes made to those requirements by the TTPA or HERA. The regulations must reflect the rules for the special allowance eligibility of both loans for which SAP at the 9.5 percent minimum rate is now claimed and loans on which this rate may be claimed in the future. The TTPA placed significant restrictions on the eligibility of new loans for the 9.5 percent SAP, and the HERA significantly restricted whether additional loans could acquire eligibility. However, the eligibility of the great majority of loans on which a 9.5 percent SAP is now and will be claimed depends on, or may be affected by, transactions such as various refinancing transactions that occurred prior to the effective date of either the TTPA or HERA. The prior regulations did not state the consequences of some of those transactions, even though those consequences had been well settled, under the Department's interpretations of the law in effect when the transactions occurred. To clarify the requirements for 9.5 percent SAP eligibility, the interim final regulations first incorporate these interpretations, and then address changes made by the TTPA to the continued eligibility of these loans for 9.5 percent SAP, and by the HERA as to whether loans may acquire that eligibility. The interim final regulations include in § 682.302(f) an explanation of certain terms (refinance and originally issued) that reflects Departmental interpretations and usage of those terms historically. Based on that usage, it is reasonable to conclude that the terms are already generally understood as explained in the regulations. The interim final regulations, as published on August 9, 2006, do no more than provide loan holders (and other interested parties) an orderly statement of the requirements for acquiring and continued eligibility for 9.5 percent SAP for all cohorts of loans, both as in effect before the 2004 and 2006 amendments to the HEA, and under the 2004 and 2006 amendments to the HEA. The interim final regulations did not create or change the terms, conditions, and requirements for the eligibility for the 9.5 percent SAP from those which already existed under applicable law. To the extent that loan holders were in compliance with the requirements of:
(1)The then-current regulations;
(2)applicable prior Department interpretations of those regulations and the HEA; and
(3)changes made by the TTPA and by the HERA, the billing status of loans was not changed with the publication of the interim final regulations. *Changes:* None. *Comment:* Several commenters claimed that § 682.302(e)(2) and
(3)improperly requires that a loan acquired with pre-October 1, 1993 tax-exempt funding be “financed continuously” by tax-exempt financing to retain eligibility for SAP at the 9.5 percent minimum rate. Some believed that the interpretations on which the Department relied in adopting the interim final regulations had not been communicated to the public, or that the regulations went beyond merely updating existing regulations to reflect longstanding policy. Another commenter questioned whether the “debt” to which § 682.302(e)(2)(i)(B) refers to as having been “refinanced” is a student loan or a bond. *Discussion:* The term “financed continuously”, to which the comments refer, appears only in § 682.302(e)(2). Section 682.302(e)(2) describes the special allowance rate applicable to any loan acquired with funds from a source that makes the loan eligible for a SAP at the 9.5 percent minimum rate that has been refinanced. All loans that are initially eligible for a 9.5 percent SAP and have been refinanced can be divided into two mutually exclusive groups. The first group includes only those loans that have been refinanced exclusively and continuously from tax-exempt sources. The second group includes all loans not in the first group. The phrase “financed continuously” is used to describe the first group, not to exclude the second group from potential eligibility for SAP at the 9.5 percent minimum rate. The interim final regulations contained no provisions that limit continued eligibility for SAP at the 9.5 percent minimum rate only to loans in the first group—those loans continuously refinanced from tax- exempt sources. Some loans in the second group also retain that eligibility after refinancing. The regulations add no condition on 9.5 percent SAP eligibility that was not already contained in the statute or regulations. The regulations accurately reflect Department interpretations of applicable law that establish which SAP rate applied to loans refinanced using tax-exempt sources. The Department has had numerous discussions with program participants who have cited these interpretations and it is clear that the loan industry has been aware of the Department's interpretation of these terms. The regulations in § 682.302(e)(2)(i)(A) and
(B)describe the first group of refinanced loans—those continuously refinanced using tax-exempt sources—and state that such loans qualify for a SAP at the 9.5 percent minimum return rate. These regulations rest squarely on the Department's interpretation of the HEA as articulated in previous guidance issued in DCL 93-L-161 (November 1993), p. 13; Dear Colleague Letter 93-L-163 (December 1993), p. 2. Under the Department's interpretation of the regulations included in the DCLs, loans that were eligible for the 9.5 percent SAP rate prior to a tax-exempt refinancing remained eligible after that refinancing. Because refinancing from tax-exempt sources does not alter eligibility of the loan for the 9.5 percent SAP rate, there is no need to distinguish between loans involved in a single tax-exempt refinancing and those involved in a series of tax-exempt refinancings. The regulations therefore include in this first group all loans that have been associated only with a tax-exempt refinancing, without regard to the number of those refinancings. The phrase “financed continuously by tax-exempt obligations,” in § 682.302(e)(2)(i)(B)( *2* ) simply describes loans associated exclusively with tax-exempt refinancing. The regulations do not exclude from eligibility for the 9.5 percent SAP loans affected by other refinancings. The Department's regulations in § 682.302(e)(2)(ii) describe loans refinanced from sources other than qualified tax-exempt sources. This second group consists of two subgroups, which are distinguished by the treatment of the tax-exempt obligation affected by the refinancing. If the prior tax-exempt obligation is retired or deceased, SAP is payable at the taxable rate. This rule has been in effect since 1985. If the prior tax-exempt obligation has not been retired or defeased, SAP remains payable at the 9.5 percent minimum return rate as discussed in DCL 96-L-186 (March 1996). The regulations use the words “a loan is refinanced” to describe the refinancing of an individual student loan. The term “refinance” is commonly used as well to refer to the refunding of an outstanding bond or other financial obligation. The regulations in § 682.302(e)(2)(i) use the phrase to refer to a bond or other instrument issued to refund an existing bond or other obligation of the issuer. *Changes:* Section 682.302(e)(2) as revised in the interim final regulations effectively explains the applicability of the SAP rates and so it is not necessary for us to retain paragraph (c)(5) of § 682.302. Therefore, subparagraph (c)(5) is removed. *Comments:* One commenter objected to the explanation in § 682.302(f)(2) that a bond is considered to be “originally issued” when issued to obtain funds to make or acquire loans in which the Authority did not have an interest. This explanation, the commenter noted, would exclude a tax-exempt obligation issued to refund an existing taxable bond or to refinance loans already held by the Authority. The provision would thus disqualify from eligibility for the 9.5 percent SAP loans acquired with proceeds of those obligations, even if they had been issued prior to October 1, 1993. *Discussion:* The provision addressing the phrase “originally issued” is used to explain how the October 1, 1993, deadline affects at least four different types of tax-exempt obligations:
(a)Obligations used to obtain funds to make loans or acquire loans from third parties;
(b)obligations that refund a pre-October 1, 1993, qualifying obligation or are part of a series of such refunding issues;
(c)obligations used to refund a taxable obligation of the issuer; and
(d)obligations used to obtain funds to acquire loans that the Authority made or purchased using funds from either a taxable obligation or a tax-exempt obligation issued on or after October 1, 1993, but not to refund that obligation. The language in § 682.302(f)(2) to which the commenter objects clearly applies to the “new money” issues, described in paragraph
(a)above. However, we agree with the commenter that the language could be read to exclude from tax-exempt special allowance treatment loans acquired with funds from tax-exempt obligations described in paragraphs
(c)and (d), even if the tax-exempt bond had been issued before October 1, 1993. That result would be contrary to the position taken in the 1985 regulations and contrary to our intent in using this particular language. 1 We also believe that the language should be revised to make it clear that a tax-exempt refunding, or series of such refundings, of a tax-exempt obligation does not change the SAP status of loans made or purchased with funds obtained from the first such tax-exempt obligation so refunded, as described in paragraph (b). 1 The term purchase includes acquisition of an interest in a loan by means of a pledge of the loan, and the 1985 regulations implicitly interpret the term purchase as used in section 438 of the HEA to include acquisition of a loan by pledge, not merely acquisition from another party. *Changes:* The interim final regulations were intended to state, and not change, existing law. Accordingly, we have revised § 682.302 to state, in new paragraph (f)(2)(i), that an obligation the proceeds of which are used to make or purchase loans, including by pledge as collateral for that obligation, is considered to be originally issued on the date it is issued. The limitation that loans are considered purchased only if the Authority has neither an existing legal or equitable interest in the loan is removed. Second, the regulation is revised to add a new paragraph (f)(2)(ii) to address specifically a tax-exempt obligation that refunds, initially or in a series of such refundings, a tax-exempt obligation the proceeds of which were used to make or purchase loans (one described in paragraph (f)(2)(i)). Such a tax-exempt refunding obligation is considered to be originally issued on the date on which the initial tax-exempt obligation, described in paragraph (f)(2)(i), was issued. Basic Program Agreement (§ 682.401) *Comments:* One commenter requested that we revise § 682.401(b)(10)(iii) to clarify that a lender is required to charge an insurance premium or Federal default fee. *Discussion:* Sections 682.401(b)(10)(i)(A) and
(B)clearly states, with the exception of a Consolidation Loan or SLS or PLUS Loan refinanced under § 682.209(e) or (f), the requirements on the collection of insurance premiums and Federal default fees by a guaranty agency. Further clarification is unnecessary. *Changes:* None. *Comments:* Several commenters requested that a change be made to § 682.401(b)(14) to reflect the payment to lenders of exempt, lender-of-last-resort, and other claims that may be paid at 100 percent insurance. *Discussion:* This section of the FFEL regulations outlines the basic program agreement between the guaranty agency and the Secretary. Specifically, § 682.401(b)(14) outlines the guarantee liability of the agency, which relates primarily to the payment of default claims. Although other kinds of claims may be paid on a loan, we do not believe that it would be appropriate to include these other claim types, none of which can be reasonably anticipated at the time of guarantee, in § 682.401(b)(14). *Changes:* None. *Comments:* Several commenters stated that the HERA revised section 428(c)(2) of the HEA to require guarantors to establish procedures to ensure that Consolidation Loans are not an excessive proportion of the guaranty agency's recoveries on defaulted loans, but objected to the inclusion in § 682.401(b)(29) of the requirement that guarantors submit these procedures to the Secretary for approval. *Discussion:* We believe that if a guarantor is required by law to establish procedures to ensure that Consolidation Loans are not an excessive portion of the agency's recoveries on defaulted loans, then the Secretary has a fiscal responsibility to review and approve such procedures. The requirement to submit these procedures to the Secretary for approval is also authorized by § 682.401(d)(2). *Changes:* None. Identity Theft (§§ 682.402 and 685.215) *Comments:* Many commenters expressed concern regarding the provisions of the interim final regulations that implement the HERA provisions relating to the discharge of an FFEL or Direct Loan that was falsely certified as the result of the crime of identity theft. Several commenters felt that a definition of identity theft based on the adjudication of a crime is too narrow and burdensome and that we should adopt the definition of identity theft used in the Fair Credit Reporting Act
(FCRA)and by the Federal Trade Commission (FTC). Many commenters felt that tying a discharge of an FFEL or Direct Loan to a determination by a Federal, State or local court that the crime of identity theft had occurred, and requiring documentation of that fact, was unduly restrictive. The commenters believed that requiring victims whose cases are actually prosecuted to await the outcome of a judicial process for relief fails to provide discharges and reimbursements in a timely fashion and fails to offer victims of identity theft proper relief. Several commenters asked for clarification on how a loan would be discharged under the common law defense of forgery if a law enforcement agency does not pursue a perpetrator of identity theft. Finally, the commenters requested that we immediately adopt an explicit, reliable process that provides sufficient protection to bona fide victims of identity theft and that we also track cases of unresolved identity thefts within the Department. Several commenters did not agree with the requirement that a lender and guarantor demand payment on a discharged loan from the perpetrator and pursue collection action if payment in full is not received. These commenters urged the Department to allow guarantors either to subrogate loans discharged based on identity theft to the Department or refer the loans to the appropriate enforcement agencies for action. Several commenters stated that the provisions related to identity theft would be better placed in a discrete section of the regulations. They believe this approach would facilitate processing and reporting, and ensure that lenders, guarantors, and other program participants have access to comprehensive regulations in a single, identifiable section. Several commenters noted inconsistencies between the regulations and the preamble with respect to identity theft. These commenters state that the preamble erroneously suggested that the new regulations provide for reimbursement to the loan holder only when perpetrator is affiliated with the school. The commenters requested that preamble to the final regulations accurately describe the identity theft provisions in this regard. *Discussion:* The HERA amended the HEA to authorize a discharge of a FFEL or Direct Loan Program loan if the borrower's eligibility was falsely certified because the borrower was a victim of the “crime” of identity theft. The HERA specifically provides for a loan discharge only when a “crime” of identity theft has occurred. For this reason, the interim final regulations provide relief only to the victim of a proven crime of identity theft. The purpose of the Fair and Accurate Credit Transactions Act
(FACT)(which amended the FCRA) and similar legislation and the FTC rules is to enable individuals who believe that their identifying information has been misappropriated to alert parties who might extend credit to the thief based on that stolen identity information. The purpose of the identity theft provision in the HEA is different—to relieve borrowers and lenders from liability on loans that result from proven misuse of that information. Thus, the FACT Act requires credit reporting agencies to post “fraud alerts” on an individual's credit record to deter lenders from extending credit to a thief who uses the stolen identity information, and to block the reporting of any information on the record that the individual identifies as resulting from that identity theft. 16 U.S.C. §§ 1681c-1, 1681c-2. There is little, if any, substantive difference between the FACT Act definition of “identity theft” in 16 U.S.C. § 1681a(q)(3) and the descriptive definition used in the interim final regulations. Therefore, there is no reason to use the specific FACT Act definition. The commenters' claim that the regulations are unduly restrictive is contrary to American common law. As indicated in the preamble to the interim final regulations, under generally applicable laws, individuals who do not apply for loans, execute promissory notes for loans or knowingly accept the benefits of loan disbursements are not liable to repay those loans, even if their names were forged on the loan instrument. An individual who claims that his or her signature was forged is not required to delay asserting that claim until a criminal prosecution occurs and nothing in the Department's regulations require such a delay. An individual who claims that his or her signature was forged can assert that claim to oppose liability on a loan and the holder of the loan must evaluate and accept or reject that claim whether or not a criminal prosecution occurs. The regulations require the guaranty agency, not the lender, to demand payment from the perpetrator of the identity theft. Guaranty agencies must ordinarily use due diligence to collect FFEL Program loans and the perpetrator is liable for such a debt. In some instances, the Department may choose to take assignment of the debt. However, the regulations do not require a guaranty agency to take unusual or extraordinary steps to collect this debt. The comment that the regulations regarding identity theft discharge relief should be placed in a separate section does not explain why such treatment would improve clarity of the procedure. The provisions added in the interim final regulations implement a specific discharge provision added by the HERA to the other discharge relief available under section 437(c) of the HEA. The regulations are not intended to provide general guidance on handling claims that loan applications or promissory notes have been forged where the claim does not rest on a proven crime. Because each provision for discharge relief under section 437(c) of the HEA offers relief to borrowers or purported borrowers by payment to the holder of the loan, it is logical to include procedures for handling claims under the new discharge provision among the existing procedures for claims for other kinds of discharge relief. The comment suggesting that the Department adopt a process for tracking what it refers to as unresolved identity thefts does not appear to be practicable at this time. To the extent that this proposal is meant to deter lenders from extending new credit based on new false applications using the same individual's identity, the proposal duplicates the procedure already required under the FACT Act. Lenders must obtain a credit report in order to qualify an applicant for a PLUS Loan, and therefore, the alert option available under the FACT Act can be expected to provide effective prospective relief with respect to applications for PLUS Loans. Implementation of a system that would prospectively protect alleged victims of identity theft from misuse under all the student loan programs requires participation and input from many participants in the loan programs. Such a process may be both costly and complicated. The Department is open to considering practical proposals in the future. Finally, the commenter is correct that there are inconsistencies between the preamble to the interim final regulations and the interim final regulations, themselves, regarding reimbursement to the loan holder when the perpetrator of identity theft is affiliated with a school. As noted in the preamble to the interim final regulations, § 682.402(e)(1)(i)(B) of the false certification discharge provisions has, since 1994, made discharge relief, with the accompanying reimbursement to the lender, available in instances in which an individual's signature was forged on a promissory note or loan application by the school. If the forgery is not committed by someone affiliated with a school, the purported borrower would not ordinarily be legally liable for the loan. However because the loan is not legally enforceable against the borrower, the loan does not qualify for any FFEL payments from the Department. The new identity theft provision in § 682.402(e)(1)(i)(C) allows the lender to be reimbursed when the loan was made by reason of a crime of the theft of the identity of the purported borrower, without regard to whether the thief was affiliated with a school. The final regulations bar payment to the lender if the theft was committed by the lender or an agent of the lender. The preamble to the interim final regulations accurately stated these elements of the regulation. We will revise § 682.402(e)(1)(iii)(A) to be consistent with the preamble discussion in the interim final regulations. While we believe that the interim final regulations are fully consistent with the HEA and other laws, we are sympathetic to the concerns of the commenters. We intend to include this issue on the agenda for a future negotiated rulemaking to possibly consider other approaches. *Changes:* Section 682.402(e)(1)(iii)(A) has been revised by adding the word “not” before the words “pay reinsurance”. Rehabilitation of Defaulted Loans (§ 682.405(a)(2)(i)(B)) *Comments:* Several commenters stated that the regulations for rehabilitation of a defaulted loan do not account for borrowers who make only sporadic payments before beginning the required number of qualifying payments to rehabilitate the loan. They also claimed that the regulations did not reflect the 20-day grace period for a timely payment as provided in the statute. *Discussion:* We believe the regulations accurately reflect the HEA and Congressional intent. Borrowers must request, or in some fashion initiate, loan rehabilitation so that the period during which the 9 qualifying payments must be made is clear for both the guaranty agency and the borrower. Additionally, a reasonable and affordable payment amount needs to be established, and the consequences of loan rehabilitation, such as the addition of collection costs to the rehabilitated loan amount, the post-rehabilitation payment period and the likely increased payment amount, need to be explained to the borrower. Although the borrower can now make 9 qualifying payments over a 10 consecutive month period to rehabilitate a defaulted loan, a borrower should not be encouraged to make late payments or to miss a monthly payment as part of a loan rehabilitation agreement. *Changes:* None. *Comments:* One commenter noted that the original § 682.405(b)(1)(ii) through
(v)had been removed from the interim final regulations and asked if this was intentional. *Discussion:* We thank the commenter for bringing this inadvertent drafting error to our attention. *Changes:* We have reinserted these paragraphs and renumbered them accordingly. Special Insurance and Reinsurance Rules (§ 682.415) *Comments:* Some commenters asked the Secretary to interpret the change in the HERA that reduced the insurance percentage paid to lenders and lender servicers that have been designated as “exceptional performers” not to apply to loans for which the first disbursement was made before October 1, 1993. These commenters noted that, prior to October 1, 1993, the HEA required guaranty agencies to provide 100 percent insurance to lenders, but that rate was later reduced to 98 and 97 percent. Until enactment of the HERA, however, lenders or lender servicers who were designated as exceptional performers received 100 percent insurance on all claims. The HERA reduced the insurance for exceptional performers to 99 percent. The commenters argue that the HERA should not be interpreted to reduce the insurance on loans for which the first disbursement was made before October 1, 1993 to 99 percent for exceptional performers. The commenters also argue that to interpret the HERA to apply to loans for which the first disbursement was made before October 1, 1993, would violate the lenders' contractual and Constitutional rights. *Discussion:* The Secretary does not agree with the commenters. The HERA amended section 428I(b)(1) of the HEA to provide that a lender or lender servicer designated for exceptional performance would receive 99 percent insurance on “all loans for which claims are submitted for payment by that eligible lender or servicer for the one-year period” for which the lender or lender servicer has been designated. In making this change, Congress eliminated all references to 100 percent insurance for exceptional performers. Congress did not retain the 100 percent insurance for any group of loans. Thus, there is no statutory basis for the Secretary to authorize 100 percent insurance on any claims submitted by an exceptional performer after the effective date of the HERA (July 1, 2006). The Secretary also does not agree that this change violates any contractual or constitutional rights of a lender. A lender chooses to apply for exceptional performer status because of the benefits it provides to the lender. A lender is not required to apply for such status or to retain such status after it has been granted. Moreover, Congress can modify the terms of the exceptional performer status or end it completely without any violation of a lender's rights. In the HERA, Congress chose to reduce the insurance coverage on loans held by exceptional performers that were made before October 1, 1993, apparently as a way of offsetting the overall costs of providing higher insurance coverage to exceptional performer lenders and lender servicers than to others. A lender or lender servicer that has been designated as an exceptional performer can still receive 100 percent insurance on loans disbursed prior to October 1, 1993 by relinquishing its exceptional performer status. By relinquishing its exceptional performer status, however, it will be accepting a lower insurance rate on all other claims. *Changes:* None. School as FFEL Lender (§ 682.601(a) and (b)) *Comments:* Many commenters asked that we clarify the regulations regarding a school lender's use of proceeds from the sale or other disposition of loans for need-based grants. These same commenters questioned the difference between the items identified in the parenthetical phrase in § 682.601(a)(8) and those identified as not considered “reasonable and direct administrative expenses” in § 682.601(b) and asked that these discrepancies be eliminated. One commenter requested that we identify the mandated costs of reduced origination fees and reduced interest rates as allowable, reasonable and direct administrative expenses for school lenders. A couple of commenters asked for guidelines on how a school lender should use loan proceeds for required need-based grants in a manner that would supplement, but not supplant non-Federal funds that would otherwise be used for need-based student grant programs. The commenters also noted that no definition of need-based grant was provided in the regulations. One of those same commenters also asked us to clarify that a school operating as a FFEL school lender would not be prohibited from providing assistance to its students, other than Stafford Loans, from institutional sources. Another commenter stated that required need-based grants from loan proceeds should be based on the school lender's actual net loan proceeds from the prior year. One commenter suggested that § 682.601(a)(9) be revised to clarify that the loans a school lender must make prior to April 1, 2006 be FFEL program loans. Another commenter asked us to clarify whether a FFEL school lender was required to conduct a separate independent audit of its lender operation. *Discussion:* In reviewing the regulatory provisions that address the use of loan proceeds for need-based grants and allowable, reasonable and direct administrative expenses, we agree that further clarification is appropriate. We believe that certain FFEL school lender's mandated or required expenses can be characterized as programmatic expenses, but not as direct administrative expenses under the HEA. As a result, § 682.601(b) specifies that reasonable and direct administrative expenses do not include the costs associated with securing financing, the cost of offering reduced origination fees or reduced interest rates to borrowers, or the cost of offering reduced Federal default fees to borrowers. However, we have decided to permit a school lender to exclude the costs of other statutorily mandated or necessary programmatic expenses from the calculation of “proceeds from the sale or other disposition of loans” that must be used for need-based grants. The parenthetical phrase in § 682.601(a)(8) addresses this exclusion. Certain optional costs, such as reduced Federal default fees, are not covered by the exclusion from loan proceeds or as a reasonable and direct administrative expense. A school that is also a FFEL Program lender should be able to demonstrate on an ongoing basis that there is no pattern or practice of reducing institutional funds available for use as non-Federal need-based grants or scholarships as a result of the availability of lender produced funds that must also be used for need-based grants. An institution's continued commitment to use institutional as well as school lending-produced proceeds for this purpose will demonstrate that the school is supplementing, not supplanting, institutional funds committed to need-based grants and scholarships. We will not dictate a specific approach a school lender must use to determine its budget for need-based grants from lending-produced proceeds. The lender must be able to show clearly that all proceeds from the sources listed in § 682.601(a)(8), except for those authorized to be used for reasonable and direct administrative expenses and other required programmatic costs that can be netted from proceeds, are used for need-based grants. We understand that award commitments are made in advance of the start of the school's academic year and that this period does not generally correspond with the school lender's fiscal year. Determining the pool of funds available for need-based grants based on the school lender's immediately preceding fiscal year's lending performance, with an additional factor for increased proceeds based on increased loan volume, if applicable, would appear to be a reasonable approach. “Need,” for purposes of need-based grants, is documented need for Title IV, HEA program purposes. The provisions governing FFEL school lenders do not prohibit the school from making other forms of student financial assistance available to its students. As provided in § 682.601(a)(7) and discussed in the preamble of the interim final regulations, a FFEL school lender must submit a compliance audit as a lender in accordance with the requirements contained in § 682.305(c)(2) for any fiscal year in which the school engages in activities as an eligible lender, beginning with the first fiscal year beginning on or after July 1, 2006. School lenders subject to the Single Audit Act, 31 U.S.C. 7502, will be required under § 682.601(a)(7) to include its FFEL Program lending activities in the annual audit and to include information on those activities in the audit report, whether or not the lending activities or the student financial aid programs are considered a “major program” under the Single Audit Act. Other school lenders will have to arrange for a separate audit of their lending activities using the Lender Audit Guide available through the Department of Education's Office of Inspector General. In making the changes to clarify the audit requirements, we determined that § 682.305(c)(2)(v) and
(vi)included outdated references to other Departmental regulations and audit requirements. We have corrected the citations to the audit requirements for governmental entities in § 682.305(c)(2)(v). We have also added nonprofit organizations to § 682.305(c)(2)(v), because amendments to the Single Audit Act apply the same requirements to governmental entities and nonprofit organizations. We have removed the separate discussion of audit requirements for nonprofit organizations in § 682.305(c)(2)(vi) and replaced it with a cross-reference to the school lender audit requirements. *Changes:* The requirement that school lenders have an annual audit in § 682.601(a)(7) has been amended to clarify that, in addition, a school lender subject to the Single Audit Act must in addition during years when the student financial aid cluster, as defined in OMB Circular A-133 Compliance Supplement, is not audited as a major program, also audit the school's lending activities as a major program under the Single Audit Act. This additional requirement is without regard to the amount of loans made. We have also made technical corrections to § 682.305(c)(2) as discussed above. Section 682.601(a)(8) has been revised to remove the words “which does not include providing origination fees or interest rates at less than the fee or rate authorized under the provisions of the Act” following the words “need-based grants” and before “; and”. A technical change has also been made to § 682.601(a)(9) to reflect the requirement that an eligible school lender must have made one or more FFEL program loans on or before April 1, 2006. Processing Loan Proceeds (§§ 682.604 and 685.304) *Comments:* Several commenters recommended requiring entrance and exit counseling for graduate or professional students who borrow PLUS Loans. The commenters noted that a graduate or professional student PLUS borrower who has not also borrowed a Stafford Loan would never have had the benefit of Stafford Loan entrance or exit counseling. In addition, these commenters recommended that the exit counseling clarify the different repayment rules for PLUS loans and Stafford Loans. Two commenters suggested that graduate or professional students with both Stafford Loans and PLUS Loans could be exempted from the entrance counseling requirement for their PLUS Loans, because these borrowers would have already received entrance and exit counseling on their Stafford Loans. *Discussion:* The HEA exempts PLUS Loan borrowers from exit counseling requirements. Although the Secretary encourages institutions to provide exit counseling to graduate and professional student PLUS Loan borrowers, the Secretary does not have the authority to require such counseling by regulation. With regard to entrance counseling, FFEL lenders are already required, under § 682.205, to provide extensive disclosure information to borrowers before disbursing a loan. This disclosure information, which can be provided through either the rights and responsibilities statement or a plain language disclosure sent to the borrower, includes an explanation of when repayment of the loan is required. Lenders are also required to provide a disclosure to borrowers prior to the loan going into repayment. This disclosure must include the borrower's repayment schedule, the due date of the first installment payment, and the number, amount, and frequency of payments. For Direct Loans, the Department provides essentially the same information to borrowers that FFEL lenders provide under § 682.205. We believe that these disclosures are sufficient for the limited number of graduate or professional student PLUS borrowers who have not received Stafford Loan entrance counseling. *Changes:* None. *Comments:* One commenter requested that PLUS Loans be covered in the overaward language in § 682.604(h) because graduate and professional students are now eligible PLUS Loan borrowers. *Discussion:* We agree with the commenter that the overaward language should be amended to include student PLUS Loans. *Changes:* Section 682.604(h) has been amended to reflect this change. We have also made the same change in § 685.303(e) of the Direct Loan Program regulations. Borrower Eligibility (§ 685.200) *Comments:* Several commenters recommended that we revise § 685.200(b)(1)(iv) to allow a student Direct PLUS Loan applicant who is determined to have an adverse credit history to receive a Direct PLUS Loan if the student obtains an endorser who does not have an adverse credit history. The commenters noted that the endorser option is available to student PLUS applicants in the FFEL Program. *Discussion:* We did not intend to deny student applicants for Direct PLUS Loans the option of obtaining an endorser. *Changes:* We have revised § 685.200(b)(5) of the regulations to more clearly reflect that a student Direct PLUS Loan applicant who is determined to have an adverse credit history may receive a Direct PLUS Loan if he or she obtains an endorser who does not have an adverse credit history, or documents to the satisfaction of the Secretary that there are extenuating circumstances. Charges for Which Direct Loan Borrowers Are Responsible (§ 685.202) *Comments:* Several commenters suggested that we revise § 685.202(a)(3) to provide that the portion of a Direct Consolidation Loan that is attributable to Health Education Assistance Loan Program
(HEAL)loans is subject to the same interest rate provision that applies to Federal Consolidation Loans under § 682.202(a)(4)(v). The commenters noted that section 455(a)(1) of the HEA, as amended by the HERA, requires Direct Consolidation Loans and Federal Consolidation Loans to have the same terms, conditions, and benefits, unless otherwise specified in Part D of the HEA. *Discussion:* The HERA amended the HEA to require that Direct Consolidation Loans have the same terms, conditions, and benefits as Federal Consolidation Loans, unless otherwise specified in the law. However, in this case, there is a specific interest rate provision for Direct Consolidation Loans in section 455(b)(7)(C) of the HEA, and that provision does not specify a different interest rate for the portion of a Direct Consolidation Loan that is attributable to HEAL Loans. Therefore, Direct Consolidation Loans are not subject to the provision that applies to Federal Consolidation Loans under section 428C(d)(2) of the HEA. *Changes:* None. Repayment Plans (§ 685.208) *Comments:* Several commenters suggested that the HERA requires that the graduated and extended repayment plans do not require a borrower to repay the minimum amount allowed under statute. In addition, these commenters suggested that a borrower's monthly payments under these repayment plans must be at least the amount of interest and that we add a provision that would disallow single graduated payments that exceed three times any other graduated installment payment. *Discussion:* We agree that the minimum annual repayment rules should not apply to a graduated repayment plan. The HEA exempts graduated and income sensitive repayment plans from the minimum annual repayment provisions. The HEA does not exempt extended repayment plans from the minimum annual payment requirement. In addition, the FFEL Program regulations state that graduated and income sensitive repayment plans may have installments less than the minimum. However, the FFEL Program regulations do not provide for extended repayment plans to have installments less than the minimum annual payment amount. The final regulations provide that the 10-year graduated repayment plan and the extended repayment plan can have graduated payments. We do need to add to the regulations for the graduated repayment plan, for borrowers entering repayment on or after July 1, 2006, a provision that does not allow any single installment payment to be more than three times the amount of any other payment. Although the HEA does not specifically require that the payments must be at least the amount of interest, we agree that the regulations would be clearer by including a provision that monthly payments on all Direct Loan Program repayment plans must be at least the amount of the monthly accrued interest, except that the monthly payment amount under the Income Contingent and Alternative repayment plans may be less than the monthly accrued interest. *Changes:* We have revised § 685.208(g)(3) and 685.208(h)(2) to provide that, under a graduated repayment schedule, a borrower's payments may be less than $50 a month and any single installment payment may not be more than three times the amount of any other installment payment. We have added a new paragraph (a)(2)(iv) in § 685.220 of the Direct Loan repayment regulations to provide that monthly repayment plans, except Income Contingent and Alternative repayment plans, must be at least the amount of the monthly accrued interest. Consolidation (§ 685.220) *Comments:* Several commenters recommended that we revise § 685.220(c)(1) to clarify that, if a Federal Consolidation Loan is consolidated into a Direct Consolidation Loan, only the portion of the Federal Consolidation Loan that qualified for an interest subsidy will be included in the subsidized portion of the new Direct Consolidation Loan. The commenters noted that in many cases, only a portion of a Federal Consolidation Loan qualifies for an interest subsidy. *Discussion:* We agree that the current regulatory language is unclear with respect to the treatment of Federal Consolidation Loans that are included in the subsidized portion of Direct Consolidation Loans. *Changes:* We have revised § 685.220(c)(1) to clarify that only the portion of a Federal Consolidation Loan that qualified for an interest subsidy will be included in the subsidized portion of a Direct Consolidation Loan. *Comments:* Several commenters pointed out that § 685.220(d)(1)(ii)(E) and
(F)prohibit a borrower from consolidating a loan that is subject to a judgment or an order for wage garnishment unless the judgment has been vacated or the wage garnishment order has been lifted at the time the borrower applies for a Direct Consolidation Loan. In contrast, the corresponding FFEL Program regulations in § 682.201(c) provide that a judgment or wage garnishment order must have been vacated or lifted at the time a Federal Consolidation Loan is made. The commenters recommended that we revise § 685.220 to be consistent with the FFEL Program requirements related to the consolidation of loans subject to a judgment or wage garnishment. *Discussion:* We agree with the commenters that the Direct Loan Program regulations should make it clear that the judgment and wage garnishment eligibility requirements must be met at the time the Direct Consolidation Loan is made rather than at the time of the borrower's application for the loan. *Changes:* We have revised § 685.220(d) to clarify that the eligibility requirements for consolidating a loan subject to a judgment or wage garnishment must be met at the time a Direct Consolidation Loan is made. *Comments:* To ensure that Direct Loan Program borrowers have the same options for resolving a default as FFEL Program borrowers, some commenters recommended that the Secretary clarify in the regulations that a borrower with a defaulted Direct Consolidation Loan remains eligible for loan rehabilitation with a repayment plan that provides for reasonable and affordable payments such as those available under an income contingent repayment plan. Other commenters recommended that the Secretary amend the Direct Loan Program regulations to allow a borrower to consolidate a defaulted Direct Consolidation Loan if the borrower first makes satisfactory repayment arrangements on the defaulted loan and includes at least one additional eligible loan in the consolidation. *Discussion:* There is nothing in the regulations that prohibits a borrower with a defaulted Direct Consolidation Loan from entering into an agreement to rehabilitate that loan under a repayment plan that provides for reasonable and affordable payments. We agree that the Direct Loan Program regulations, as currently written, might suggest that a borrower with a defaulted Direct Consolidation Loan is ineligible to consolidate that loan into a new Direct Consolidation Loan under any conditions. However, this was not our intent. A borrower with a defaulted Direct Consolidation Loan may consolidate that loan into a new Direct Consolidation Loan if the borrower includes at least one additional eligible loan in the consolidation, and meets the other eligibility requirements that apply to borrowers who wish to consolidate a defaulted loan. *Changes:* We have revised the regulations in § 685.220(d)(1)(ii) to clarify that a borrower may consolidate a defaulted Direct Consolidation Loan if the borrower:
(1)makes satisfactory repayment arrangements on the defaulted loan or agrees to repay the new Direct Consolidation Loan under the income contingent repayment plan; and
(2)includes at least one additional eligible loan in the consolidation. Agreements Between an Eligible School and the Secretary for Participation in the Direct Loan Program (§ 685.300) *Comments:* Several commenters recommended that we amend the regulations to reflect the Department's previous guidance that a school that awards Direct Subsidized Loans and Direct Unsubsidized Loans to its graduate or professional students through the Direct Loan Program may award PLUS Loans to its graduate or professional students through the FFEL Program, and that a school may also award Direct PLUS Loans to its graduate and professional students through the Direct Loan Program and Subsidized and Unsubsidized Federal Stafford Loans through the FFEL Program. *Discussion:* We agree that the Department's prior guidance should be incorporated in the regulations. *Changes:* We have revised § 685.300(b)(8) to clarify that a school may award a PLUS Loan to a parent or to a graduate or professional student through either the Direct Loan Program or the FFEL Program, and a Stafford Loan through the other loan program to a dependent undergraduate or graduate or professional student borrower for the same period of enrollment. However, a school may not award the same type of loan (i.e., Stafford or PLUS) from different loan programs to the same student or parent borrower for the same period of enrollment. Executive Order 12866 Regulatory Impact Analysis Under Executive Order 12866, the Secretary must determine whether this regulatory action is “significant” and therefore subject to the requirements of the Executive order and subject to review by the 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 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 have an annual effect on the economy of more than $100 million. Therefore, this action is “economically significant” and subject to OMB review under section 3(f)(1) of Executive Order 12866. The Secretary accordingly has assessed the potential costs and benefits of this regulatory action and has determined the benefits justify the costs. Need for Federal Regulatory Action These final regulations are needed to implement recent amendments to the HEA that affect students, borrowers and program participants in the Federal student aid programs authorized under Title IV of the HEA. The Secretary has limited discretion in implementing most of these provisions. The majority of the changes included in these final regulations simply modify the Department's regulations to reflect statutory changes made by the HERA and the other laws mentioned earlier. These statutory provisions are either already effective or will be effective shortly. The Secretary has exercised limited discretion in implementing the HERA provisions in the following areas: • *Direct Assessment:* The HERA extends eligibility for Title IV, HEA programs to instructional programs using or recognizing the use by others of direct assessment of student learning; • *Identity Theft:* The HERA authorizes a discharge of a FFEL or Direct Loan Program loan if the borrower's eligibility to borrow was falsely certified because the borrower was a victim of the crime of identity theft; and • *Special Allowance Payments:* The HERA modifies the conditions under which a loan holder qualifies for special allowance interest benefits related to PLUS loans the first disbursement of which was made on or after January 1, 2000. The following section addresses the alternatives that the Secretary considered in implementing these discretionary portions of the HERA provisions. Regulatory Alternatives Considered *Direct Assessment Alternatives:* In developing the direct assessment regulations, the Secretary drew upon the Department's experience with Western Governors University (WGU), the only institution currently participating in the Title IV student financial assistance programs that uses direct assessment, in lieu of credit or clock hours, as a measure of student learning. WGU became an eligible institution by participating in the Distance Education Demonstration Program. The Secretary looked at how the Title IV student financial aid rules had been applied in both the nonterm and non-standard term models employed by WGU and identified basic principles on which to base the regulations. One principle is that institutions that use direct assessment would need to develop equivalencies in credit or clock hours in terms of instructional time for the amount of student learning being assessed. This was necessary because many applicable Title IV, HEA program requirements use time and/or credit or clock hours to measure things other than student learning. In addition, institutions would have to define enrollment status, payment periods, and satisfactory academic progress. A second principle is tied to the statutory language that characterizes direct assessment programs as instructional programs. The Secretary determined that institutions must provide a means for students to fill in the gaps in their knowledge and that Title IV, HEA program funds should only be used to pay for learning that occurs while the student is enrolled in the program. The Secretary considered what should constitute “instruction” in a direct assessment program. The word “instruction” is not specifically defined in the Department's regulations and, in its ordinary meaning the word connotes teaching. There are several other ways, however, in which an institution might assist students to prepare for assessments. The Secretary considered whether the definition of instructional time in § 668.8(b)(3), which is used for other types of programs, could be used for direct assessment programs and determined that the definition was not sufficiently broad to be used in this context. The Secretary recognized that institutions offering direct assessment programs might use courses or learning materials developed by other entities, such as training and professional development organizations and other educational institutions, to assist students in preparing for the assessments. The Secretary considered whether the use of outside resources could be considered contracting out a portion of an educational program and determined that it could be. Therefore, the Secretary included in the direct assessment regulations a provision that exempts direct assessment programs from the limitations on contracting for part of an educational program. *Identity Theft Alternatives:* Section 8012 of the HERA authorizes a discharge of a FFEL or Direct Loan Program loan under section 437(c) of the HEA if the eligibility of the borrower was falsely certified as a result of the crime of identity theft. In developing regulations to implement section 8012, we sought to reflect the statutory language that requires the Department to discharge the borrower's responsibility to repay the loan when a “crime of identity theft” has occurred. The final regulations require that to receive a discharge on a loan, an individual must provide the holder of the loan, a copy of a local, State, or Federal court verdict or judgment that conclusively determines that the individual who is the named borrower of the loan was the victim of the crime of identity theft. We adopted this standard as an inexpensive and reliable way to implement the new discharge provision. If the perpetrator of an identity theft is never prosecuted, and no judicial determination that a crime occurred is rendered, a borrower can still be relieved of any responsibility to repay the loan under the common law (and in many instances, State law) defense of forgery. We stressed this consideration in the preamble to the interim final regulations. One alternative we considered was to authorize a discharge for “identity theft” based on representations from the individual, much as is now done for closed school discharge relief, that the crime of identity theft had been committed, and that the claimant was the victim of that criminal act. We rejected this alternative as costly, unworkable, and unnecessary to provide relief to the individuals who may be victims of this crime. Under this alternative, the claimant and/or the lender would be required to submit evidence needed to establish whether conduct has occurred that would constitute the crime of identity theft. That evidence may be voluminous, difficult to obtain, and would likely include witness testimony. Amassing and transmitting that evidence would be difficult and costly for lenders and claimants. Furthermore, determining whether a crime has been committed requires discerning the identity of the perpetrator and determining the state of mind of that person. Neither the Department nor the guaranty agency is authorized to determine whether that evidence shows that a crime has been committed. That determination is routinely and reliably made through the judicial process, which is designed to perform this function. Moreover, there is no need to ignore the judicial process in order to give relief to those individuals who did not in fact take out the loans for which they are listed as borrowers. Under State statutes and common law, individuals whose signatures have been forged on loan documents are not liable for those debts. Individuals who show that their signatures have been forged on loan documents, and that they neither authorized nor received a loan made in their name, are not held liable by the Department. For these reasons, we rejected the alternative that would entail an extra-judicial proof of a crime. Instead, we simply require the claimant to submit a copy of a judicial verdict that identity theft was committed. *Special Allowance Payment Alternatives:* The Department considered a number of alternatives related to the effective date for implementation of section 8006 of the HERA, which eliminates the limitation that special allowance payments on PLUS Loans for which the first disbursement was made on or after January 1, 2000, only be paid if the formula for determining the borrower interest rate produces a rate that exceeds the statutory maximum borrower rate of 9 percent. The first alternative was to make this provision retroactive to January 1, 2000, an approach that would result in substantial additional special allowance payments to many PLUS Loan holders. Although this option was suggested by some members of the student loan industry, the Department determined that this approach was inconsistent with the statute. Other alternatives considered reflected differing interpretations of the provision's effective date. Section 8006 states that “amendments made by this subsection shall not apply with respect to any special allowance payment made under section 438 of the Higher Education Act of 1965 (20 U.S.C. 1087-1) before April 1, 2006.” Since special allowance payments are made on a quarterly basis, the Department had to determine whether the statute's intent was to remove the limitation on PLUS special allowance payments for the quarter of January-March 2006—the first quarter for which bills would be submitted, verified, and paid after April 1, 2006 or for the quarter of April-June 2006, the first full quarter after the HERA's enactment. The Department estimated Federal costs would increase by $53 million if the limitation was removed for the January-March quarter. This estimate was based on data on special allowance rates and balances for the affected quarter. After a careful review of the statutory language, the Department determined that the statute's likely intent was to remove the limitation for the January-March 2006 quarter, since this was the first quarter for which payments would be made after April 1, 2006. The final regulations reflect this determination. Benefits Given the breadth of these regulations, the discussion of benefits and costs will be limited in most cases to provisions with an economic impact of $100 million or more in any one year. By facilitating the implementation of changes made in the HERA and other recent student aid-related statutes, these final regulations will support the provision of a broad range of student benefits. In general, these benefits reduce the costs of higher education to students, increase the amount of Federal student aid or increase the number of students eligible for Federal student aid. The economic benefits of any specific change are difficult to discern, as they have direct benefit to the individual aid recipient and broader societal benefits resulting from the economic impact and tax-paying potential of a well-educated population. Research indicates that reductions in the cost of higher education are correlated to increased student enrollment, retention, and completion. The U.S. Census Bureau has found people with a bachelor's degree realize as much as 75 percent higher lifetime earnings than those whose education is limited to a high school degree. (“The Big Payoff: Educational Attainment and Synthetic Estimates of Work-Life Earnings,” July 2002.) Specific benefits provided to student borrowers in these final regulations include increases in certain FFEL and Direct Loan Program loan limits; reduced origination fees in the FFEL and Direct Loan Programs; broadened eligibility for PLUS Loans to include graduate and professional students; expanded access to distance education programs; permanently expanded loan forgiveness for highly qualified math, science, and special education teachers at low-income schools; and a new deferment for FFEL, Direct Loan and Perkins Loan Program borrowers who serve on active duty military service during times of war or national emergency. These benefits are projected to increase Federal outlays by $5.2 billion for loans originated in FY 2006-2010. This estimate was developed using projected interest rate, loan volume, and borrower demographic data used in preparing the FY 2007 President's Budget. Projected loan volume and borrower data are based on trend analyses of actual program activity, primarily drawn from the National Student Loan Data System (NSLDS) and other Department systems. These estimates were derived from the Department's projections that show that loan volume will increase an estimated $3.2 billion in award year 2007-2008 and $11.6 billion from fiscal year 2006-2010 as a result of higher loan limits. Over the latter period, average loan amounts are estimated to increase by $184 for Stafford Loans and $156 for Unsubsidized Stafford Loans. The phased reduction of loan origination fees is estimated to reduce fees by $5.6 billion on 70,000 loans over award years 2006-2010. The expansion of distance education made possible by the changes to the “50 percent rule” and the definition of correspondence courses will allow institutions to more aggressively pursue new communication technologies to provide students significantly greater flexibility in the scheduling and location of academic programs. The Department estimates this expanded flexibility will increase the pool of students eligible for Federal student aid by 30,000 students a year in 2006 and 2007, of whom 17,000 per year will be eligible to receive a Pell Grant. With an average grant of $2,306, these additional Pell Grant recipients will receive an estimated $196 million in Pell Grant aid over 2006-2010. This estimate is based on a trend analysis of Pell Grant program data and projections of institutional and program eligibility for Federal student aid derived through the use of accreditation data. The Department included in these estimates that additional students made eligible for student aid would borrow $441 million in student loans over 2006-2010. The regulation's teacher loan forgiveness provisions offer incentives to help address longstanding national and regional elementary and secondary school staffing problems. Many studies (Boe, Bobbitt, & Cook, 1997; Grissmer & Kirby, 1992; Murnane et al. , 1991; Rumberger, 1987) and extensive research prepared for the National Commission on Mathematics and Science Teaching) have found math, science, and special education to be fields with especially high turnover and those predicted most likely to suffer shortages. More than tripling the teacher loan forgiveness amount—from $5,000 to $17,500—for qualifying teachers in these fields should offer a powerful incentive for recruitment and retention, especially given the additional eligibility requirement that recipients teach for five consecutive years before receiving the benefit. The Department estimates this expanded benefit will increase Federal loan subsidy costs in the FFEL and Direct Loan programs by $825 million for loans originated in 2007-2010. These estimates assume over 32,000 teachers will be eligible for additional forgiveness amounts, increasing the average amount forgiven for those borrowers by approximately $8,500, from $4,700 to $13,300. (The additional benefits were available for loans made in 2006 as a result of the Taxpayer-Teacher Protection Act of 2004, so for the purposes of this analysis additional benefits have only been considered for 2007 and beyond.) This estimate was developed using projected interest rate, loan volume, and borrower demographic data used in preparing the FY 2007 President's Budget. Estimates of borrower eligibility were based on program data—primarily from NSLDS—demographic information from the National Center for Education Statistics' Schools and Staffing Survey. Lastly, the Department's estimates took into account the creation of a new deferment related to active-duty military service during a war or national emergency is estimated to reduce interest payments by an average of $1,500 for 21,000 borrowers. In addition to implementing expanded borrower benefits, these final regulations also implement a number of provisions intended to improve the cost-effectiveness and efficiency of the FFEL and Direct Loan programs, streamline program operations for participating institutions, and standardize loan terms and conditions across the two programs. These changes are estimated to reduce Federal outlays by $7.0 billion for loans made in FY 2006-2010, freeing up resources for other urgent requirements. This estimate was also developed using projected interest rate, loan volume, and borrower demographic data used in preparing the FY 2007 President's Budget. Projected loan volume, guaranty agency and lender information, and borrower data are based on trend analyses of actual program activity, primarily drawn from NSLDS and other Department systems. Provisions intended to enhance loan program efficiency include a number of changes intended to promote risk-sharing by FFEL participants through reduced program subsidies, including: restrictions on higher-than-standard special allowance payments for loans funded through tax-exempt securities; provisions under which the Department will recover excess interest paid to loan holders when student interest payments exceed the special allowance level set in the statute; and a reduction in loan holder's insurance against default from 98 percent to 97 percent of a loan's principle and accrued interest. Given the broad availability of FFEL program loans—over 4,000 lenders provided more than $43 billion in new loans and an additional $53 billion in consolidation loans in FY 2005—these changes are not expected to reduce student and parent access to loan capital. The student loan industry features high competition among loan providers, using an array of interest rate discounts and other borrower benefits to attract volume. The overwhelming majority of student loans are sold by the originating lender in the secondary market. The impact on individual lenders of HERA provisions reducing Federal subsidies are inestimable; a substitution of subsidies for student interest rate cuts may occur or the secondary market price of securitized loans may be revalued. Given the high level of government guaranty on these loans, as well as the guaranteed rate of return, continued access to loan capital for all borrowers should be assured. The impact on individual loan holders may be mitigated by investment and tax considerations from their investment portfolios as a whole. Higher borrower loan limits and standardized repayment terms may increase long-term interest income to some loan holders under these regulations. The estimates were derived from changes to limit the payment of higher-than-standard special allowance on loans funded through tax-exempt securities, balances eligible to receive the higher special allowance payments are estimated to decrease from $15.5 billion in FY 2006 to $8.3 billion in FY 2010. While the recovery of excess interest subsidies produced no estimated savings under interest rate projections used for the FY 2007 President's Budget, this policy does save significant amounts under the probabilistic interest rate forecasting methodology used by the Congressional Budget Office and adopted by the Administration for the FY 2007 Mid-Session Review. These savings are not included in the estimate of total savings discussed above, as this was developed prior to the Mid-Session Review. Reducing lender insurance against default from 98 percent to 97 percent is estimated to decrease Federal payments by $37.5 million over FYs 2006-2010. Lastly, the final regulations include a number of provisions intended to standardize terms and conditions and broaden borrower choices, particularly for consolidation loans. These changes include the repeal of the single holder rule, which limits the ability of FFEL borrowers whose loans are held by a single holder to consolidate with other lenders, and the standardization of graduated and extended repayment plans—previously different for Direct Loans and FFEL—on the FFEL model. The repeal of the single holder rule should give all borrowers access to interest rate discounts and other benefits available through the highly competitive consolidation loan market. The standardization of repayment plan terms will eliminate a possible source of confusion for borrowers and promote equity across the two loan programs. Under this provision, the Department estimates more Direct Loan borrowers who wish to obtain longer-than standard repayment plans will consolidate their loans. As a result, the estimated percentage of Stafford Loan borrowers in standard repayment will increase from 76 percent to 87 percent, while the percentage in graduated and extended repayment will decrease from 23 percent to 11 percent. These provisions also are expected to improve market transparency and remove transaction barriers for loan borrowers, improving market openness and efficiency for both borrowers and loan providers. Costs These final regulations include a number of provisions that will impose increased costs on some borrowers, such as an increase in the loan interest rate for FFEL PLUS borrowers, the elimination of in-school and joint consolidation loans, and the mandatory imposition of the previously optional 1 percent guaranty agency default insurance premium. (At the same time, these provisions will reduce the Federal costs of these programs and, in the case of the guaranty fee, improve the financial stability of guaranty agencies. Only 14 of 35 agencies collected this fee in FY 2005; the mandatory imposition of the fee is estimated to add $1.5 billion to the balance of agency Federal Funds over 2006-2010.) Prior to the HERA, these provisions allowed loan providers or guaranty agencies to discriminate among borrowers through the unequal distribution of borrower costs. While some borrowers may lose unearned benefits through these statutory and regulatory changes, market equitability and transparency are improved. These final regulations also authorize the Secretary to waive a student's Title IV grant repayment if the student withdrew from an institution of higher education because of a major disaster as declared by the President in accordance with the Robert T. Stafford Disaster Relief and Emergency Assistance Act. The Secretary will exercise this waiver authority on a case-by-case basis after determining that a major disaster has significantly affected recipients of Title IV grant aid. Because entities affected by these regulations already participate in the Title IV, HEA programs, these lenders, guaranty agencies, and schools must have already established systems and procedures in place to meet program eligibility requirements. These regulations generally involve discrete changes in specific parameters associated with existing guidance—such as changes in origination fees, loan limits, or reinsurance percentages—rather than wholly new requirements. Accordingly, institutions wishing to continue to participate in the student aid programs have already absorbed most of the administrative costs related to implementing these final regulations. Marginal costs over this baseline are primarily related to one-time system changes that, while possibly significant in some cases, are an unavoidable cost of continued program participation. The Department is particularly interested in comments on possible administrative burdens related to these system or process changes. Assumptions, Limitations, and Data Sources Because these final regulations largely restate statutory requirements that would be self-implementing in the absence of regulatory action, cost estimates provided above reflect a pre-statutory baseline in which the HERA and other statutory changes implemented in these regulations do not exist. Costs have been quantified for five years, as over time this has been a typical period between reauthorizations of the HEA. In developing these estimates, a wide range of data sources were used, including the NSLDS, operational and financial data from Department of Education 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. 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 As required by OMB Circular A-4 (available at *http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf* ), in Table 2 below, we have prepared an accounting statement showing the classification of the expenditures associated with the provisions of these final regulations. This table provides our best estimate of the changes in Federal student aid payments as a result of these final regulations. Expenditures are classified as transfers to postsecondary students; savings are classified as transfers from program participants (lenders, guaranty agencies). Table 2.—Accounting Statement: Classification of Estimated Expenditures [In millions] Category Transfers Annualized Monetized Transfers $976. From Whom To Whom? Federal Government to Postsecondary Students; Student Aid Program Participants to Federal Government. Paperwork Reduction Act of 1995 We received one comment on the Paperwork Reduction Act portion of the interim final regulations. The commenter disagreed with the Paperwork Reduction Act information collection burden analysis for the changes we made to § 682.604. These changes implemented section 8010 of the HERA to end the exemption from multiple disbursement requirements for eligible foreign institutions. Our analysis stated that, in the vast majority of cases, the lender or guaranty agency is already required to disburse a FFEL Program Loan in two installments as a regular business practice and that this change would produce no additional burden for foreign schools. The commenter stated that, while the requirement to disburse a loan in two installments is a regular business practice at U.S. institutions, prior to publication of the interim final regulations, it had not been true for foreign schools. The commenter stated that disbursing a loan in two installments is a new burden for foreign schools and for lenders and guaranty agencies that provide loans to their American students enrolled in foreign schools. As a result of public comment, we have reconsidered and recognized the burden associated with the elimination of the exemption of single disbursement of FFEL Loans to students attending foreign institutions. While there is additional burden associated with making two disbursements of a FFEL Loan for a student attending a foreign institution, the burden is primarily at the institution in the processing of an additional disbursement. Since the normal business process for a lender or guaranty agency includes making multiple disbursements of FFEL Loans, there is no significant additional burden to the lender or guaranty agency. These additional activities will increase burden hours by 20,000. A Paperwork Reduction Act submission for OMB Control Number 1845-0020, which covers the burden in § 682.604, has been submitted to OMB for approval. As noted in the interim final rules, the Department has been working with its major stakeholders to develop the forms and applications necessary to implement many of the provisions of this rulemaking activity. The Department plans to separately publish the required **Federal Register** notices for the collections of information associated with the following sections: active duty military (§§ 674.34, 682.210, and 685.204), obtaining and repaying a loan (§ 682.102), identity theft (§ 682.402), and consolidation (§ 685.220). OMB has already approved the increased burden for the information collection requirements associated with the teacher loan forgiveness provisions (§§ 682.215 and 685.217) under OMB Control Number 1845-0059. Assessment of Education 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.gpoaccess.gov/nara/index.html.* List of Subjects 34 CFR Part 668 Administrative practice and procedure, Colleges and universities, Consumer protection, Education, Grant programs—education, Loan programs—education, Reporting and recordkeeping requirements, Student aid, Vocational education. 34 CFR Part 673 Administrative practice and procedure, Colleges and universities, Consumer protection, Education, Employment, Grant programs—education, Loan programs—education, Reporting and recordkeeping requirements, Student aid, Vocational education. 34 CFR Parts 682 and 685 Administrative practice and procedure, Colleges and universities, Education, Loans program—education, Reporting and recordkeeping requirements, Student aid, Vocational education. Dated: October 25, 2006. Margaret Spellings, Secretary of Education. For the reasons discussed in the preamble, the Secretary amends parts 668, 673, 674, 682, and 685 of title 34 of the Code of Federal Regulations as follows: PART 668—STUDENT ASSISTANCE GENERAL PROVISIONS 1. The authority citation for part 668 continues to read as follows: Authority: 20 U.S.C. 1001, 1002, 1003, 1085, 1091b, 1092, 1094, 1099c, and 1099c-1, unless otherwise noted. § 668.2 [Amended] 2. Section 668.2 is amended in paragraph
(b)in the first sentence of the definition of *Federal PLUS program* by adding the word “dependent” immediately after the words “encourages the making of loans to parents of”. 3. Section 668.10 is amended by revising paragraph (a)(3) introductory text to read as follows: § 668.10 Direct assessment programs.
(a)* * *
(3)All regulatory requirements in this chapter that refer to credit or clock hours as a measurement apply to direct assessment programs. Because a direct assessment program does not utilize credit or clock hours as a measure of student learning, an institution must establish a methodology to reasonably equate the direct assessment program (or the direct assessment portion of any program, as applicable) to credit or clock hours for the purpose of complying with applicable regulatory requirements. The institution must provide a factual basis satisfactory to the Secretary for its claim that the program or portion of the program is equivalent to a specific number of credit or clock hours. § 668.22 [Amended] 4. Section 668.22 is amended by: A. In paragraph (a)(5)(iii)(E), removing the words “electronically or”. B. In paragraph (h)(3)(ii)(B), removing the word “A” and adding, in its place, the words “With respect to any grant program, a”. C. In paragraph (h)(5)(iii), removing the word “ended” and adding, in its place, the word “occurred”. 5. Section 668.35 is amended by: A. In paragraph (e)(2), removing the word “or”. B. In paragraph (e)(3), removing the punctuation “.” at the end of the paragraph and adding, in its place, the words “; or”. C. Adding a new paragraph (e)(4). The addition reads as follows: § 668.35 Student debts under the HEA and to the U.S.
(e)* * *
(4)The overpayment is an amount that a student is not required to return under the requirements of § 668.22(h)(3)(ii)(B). § 668.164 [Amended] 6. Section 668.164 is amended in paragraph (g)(2)(i) by adding the word “parent” immediately before the word “PLUS”. 7. Section 668.165 is amended by revising the introductory text of paragraph (a)(2) to read as follows: § 668.165 Notices and authorizations.
(a)* * *
(2)Except in the case of a post-withdrawal disbursement made in accordance with 34 CFR 668.22(a)(5), if an institution credits a student's account at the institution with Direct Loan, FFEL, or Federal Perkins Loan Program funds, the institution must notify the student, or parent of— PART 673—GENERAL PROVISIONS FOR THE FEDERAL PERKINS LOAN PROGRAM, FEDERAL WORK-STUDY PROGRAM, AND FEDERAL SUPPLEMENTAL EDUCATIONAL OPPORTUNITY GRANT PROGRAM 8. The authority citation for part 673 continues to read as follows: Authority: 20 U.S.C. 421-429, 1070b-1070b-3, and 1087aa-1087ii; 42 U.S.C. 2751-2756b, unless otherwise noted. § 673.5 [Amended] 9. Section 673.5 is amended in paragraph (c)(1)(ix) by removing the word “and” immediately before the number “1607” and adding the words “, and Section 903 of Public Law 96-342 (Educational Assistance Pilot Program)” at the end of the paragraph. PART 682—FEDERAL FAMILY EDUCATION LOAN
(FFEL)PROGRAM 10. The authority citation for part 682 continues to read as follows: Authority: 20 U.S.C. 1071 to 1087-2, unless otherwise noted. § 682.101 [Amended] 11. Section 682.101 is amended in paragraph
(c)by removing the words “, or married couples each of whom have eligible loans under these programs”, in the third sentence. § 682.201 [Amended] 12. Section 682.201 is amended by: A. In paragraph (b)(3), adding the words “or under the Federal Direct Subsidized Stafford/Ford Loan Program and Federal Direct Unsubsidized Stafford/Ford Loan Program, as applicable” immediately after the words “Unsubsidized Stafford Loan Program”. B. In paragraph (c)(1)(vii), removing the parentheticals “(b)(2)(ii)” and adding, in their place, the parentheticals “(c)(2)(ii)”. C. In paragraph (c)(3), removing the parentheticals “(b)(1)” and adding, in their place, the parentheticals “(c)(1)”. D. In paragraph (d)(1)(i)(A)( *3* ), removing the reference to “§ 682.209(a)(7)(viii)” and adding, in its place, a reference to “§ 682.209(a)(6)(iii)”. E. In paragraph (d)(2), removing the word “responsible” and adding, in its place, the word “ineligible”. § 682.204 [Amended] 13. Section 682.204 is amended by: A. In paragraph (a)(1)(i), removing the word “certified” and adding, in its place, the word “disbursed”. B. In paragraph (a)(1)(ii), removing the word “certified” and adding, in its place, the word “disbursed”. C. In paragraph (a)(1)(iii), removing the word “certified” and adding, in its place, the word “disbursed”. D. In paragraph (a)(2)(i), removing the word “certified” and adding, in its place, the word “disbursed”. E. In paragraph (a)(2)(ii), removing the word “certified” and adding, in its place, the word “disbursed”. F. In paragraph (d)(5), removing the word “certified” and adding, in its place, the word “disbursed”. G. In paragraph (d)(6)(ii), removing the word “certified” and adding, in its place, the word “disbursed”. H. In paragraph (d)(6)(iii), removing the word “certified” and adding, in its place, the word “disbursed”. § 682.206 [Amended] 14. Section 682.206 is amended in paragraph (e)(3) by adding the words “, based on an application received prior to July 1, 2006,” immediately before the word “may”. 15. Section 682.207 is amended by: A. In paragraph (b)(1)(v)(C)( *1* ), adding the words “with the home institution” after the words “verification of the student's enrollment”. B. Revising paragraph (b)(2)(i)(A)( *2* ). C. Revising paragraph (b)(2)(i)(A)( *3* ). D. In paragraph (b)(2)(i)(B), adding the word “, facsimile” after the word “telephone”. E. In paragraph (b)(2)(iv) introductory text, removing the parentheticals “(b)(1)(v)(D)( *1* )” and adding, in their place, the parentheticals “(b)(1)(v)(D)”. The revisions read as follows: § 682.207 Due diligence in disbursing a loan.
(b)* * *
(2)* * *
(i)* * *
(A)* * * ( *2* ) For a new student, contacting the foreign school the student is to attend in accordance with procedures specified by the Secretary, by telephone, e-mail or facsimile to verify the student's admission to the foreign school for the period for which the loan is intended at the enrollment status for which the loan was certified. ( *3* ) For a continuing student, contacting the foreign school the student is to attend in accordance with procedures specified by the Secretary, by telephone, e-mail or facsimile to verify that the student is still enrolled at the foreign school for the period for which the loan is intended at the enrollment status for which the loan was certified. § 682.209 [Amended] 16. Section 682.209 is amended by: A. In paragraph (a)(6)(v)(B), removing the parentheticals “(a)(7)(viii)(C)” and adding, in their place, the parentheticals “(a)(6)(viii)(C)”. B. In paragraph (a)(7)(iv), removing the parentheticals “(a)(8)(iii)” and adding, in their place, the parentheticals, “(a)(7)(iii)”. 17. Section 682.211 is amended by: A. In paragraph (f)(6), removing the words “in the case of parent a PLUS Loan” and adding, in their place, the words “on whose behalf a parent has borrowed a PLUS Loan”. B. Revising paragraph (h)(3). The revision reads as follows: § 682.211 Forbearance.
(h)* * *
(3)*Forbearance agreement.* After the lender determines the borrower's or endorser's eligibility, and the lender and the borrower or endorser agree to the terms of the forbearance granted under this section, the lender sends, within 30 days, a notice to the borrower or endorser confirming the terms of the forbearance and records the terms of the forbearance in the borrower's file. § 682.215 [Amended] 18. Section 682.215 is amended by: A. In paragraph (c)(3)(ii)(B), removing the word “either”. B. In paragraph (c)(4)(ii)(B), removing the word “either”. 19. Section 682.302 is amended by: A. Revising paragraph (c)(1)(iii)(B)( *4* ). B. In paragraph (c)(1)(iii)(B)( *5* ), removing the cross-reference “§ 682.202(a)(2)(v)” and adding, in its place, the cross-reference “§ 682.202(a)(2)(v)(A)”. C. Removing paragraph (c)(5). D. Revising paragraph
(f)introductory text. E. Revising paragraph (f)(2). The revision reads as follows: § 682.302 Payment of Special Allowance on FFEL loans.
(c)* * *
(1)* * *
(iii)* * *
(B)* * * ( *4* ) A Federal PLUS Loan made on or after July 1, 1998 and prior to October 1, 1998, except that no special allowance shall be paid any quarter unless the rate determined under § 682.202(a)(2)(v)(A) exceeds 9 percent;
(f)For purposes of this section—
(2)The date on which an obligation is considered to be “originally issued” is determined under § 682.302(f)(2)(i) or (ii), as applicable.
(i)An obligation issued to obtain funds to make loans, or to purchase a legal or equitable interest in loans, including by pledge as collateral for that obligation, is considered to be originally issued on the date issued.
(ii)A tax-exempt obligation that refunds, or is one of a series of tax-exempt refundings with respect to a tax-exempt obligation described in § 682.302(f)(2)(i), is considered to be originally issued on the date on which the obligation described in § 682.302(f)(2)(i) was issued. 20. Section 682.305 is amended by: A. In paragraph (c)(2)(v), adding the words “or a nonprofit organization” after the words “governmental entity” and removing the words “and 34 CFR, part 80, appendix G” and adding in their place the words “and 34 CFR §§ 74.26 and 80.26, as applicable”. B. Revising paragraph (c)(2)(vi). C. In paragraph (d)(1), by adding the word “rate” immediately after the word “interest” the third time it appears in the sentence. The revisions read as follows: § 682.305 Procedures for payment of interest benefits and special allowance and collection of loan origination fees.
(c)* * *
(2)* * *
(vi)With regard to a school that makes or originates loans, the audit requirements are in 34 CFR § 682.601(a)(7). § 682.401 [Amended] 21. Section 682.401 is amended in paragraph (b)(27)(iv) by removing the parentheticals “(b)(27)(ii)(D)” and adding, in their place, the parentheticals “(b)(27)(v)”. § 682.402 [Amended] 22. Section 682.402 is amended by: A. In paragraph (e), in the paragraph heading, removing the word “borrower” and adding, in its place, the word “borrow”. B. In paragraph (e)(1)(iii)(A), adding the word “not” immediately before the word “pay”. 23. Section 682.405 is amended by adding new paragraphs (b)(1)(iii) through
(vii)to read as follows: § 682.405 Loan rehabilitation agreement.
(b)* * *
(1)* * *
(iii)For the purposes of this section, the determination of reasonable and affordable must—
(A)Include a consideration of the borrower's and spouse's disposable income and reasonable and necessary expenses including, but not limited to, housing, utilities, food, medical costs, work-related expenses, dependent care costs and other Title IV repayment;
(B)Not be a required minimum payment amount, e.g. $50, if the agency determines that a smaller amount is reasonable and affordable based on the borrower's total financial circumstances. The agency must include documentation in the borrower's file of the basis for the determination if the monthly reasonable and affordable payment established under this section is less than $50 or the monthly accrued interest on the loan, whichever is greater. However, $50 may not be the minimum payment for a borrower if the agency determines that a smaller amount is reasonable and affordable; and
(C)Be based on the documentation provided by the borrower or other sources including, but not be limited to— ( *1* ) Evidence of current income (e.g., proof of welfare benefits, Social Security benefits, child support, veterans' benefits, Supplemental Security Income, Workmen's Compensation, two most recent pay stubs, most recent copy of U.S. income tax return, State Department of Labor reports); ( *2* ) Evidence of current expenses (e.g., a copy of the borrower's monthly household budget, on a form provided by the guaranty agency); and ( *3* ) A statement of the unpaid balance on all FFEL loans held by other holders.
(iv)The agency must include any payment made under § 682.401(b)(4) in determining whether the nine out of ten payments required under paragraph (b)(1) of this section have been made.
(v)A borrower may request that the monthly payment amount be adjusted due to a change in the borrower's total financial circumstances only upon providing the documentation specified in paragraph (b)(1)(iii)(C) of this section.
(vi)A guaranty agency must provide the borrower with a written statement confirming the borrower's reasonable and affordable payment amount, as determined by the agency, and explaining any other terms and conditions applicable to the required series of payments that must be made before a borrower's account can be considered for repurchase by an eligible lender. The statement must inform borrowers of the effects of having their loans rehabilitated ( *e.g.* , credit clearing, possibility of increased monthly payments). The statement must inform the borrower of the amount of the collection costs to be added to the unpaid principal at the time of the sale. The collection costs may not exceed 18.5 percent of the unpaid principal and accrued interest at the time of the sale.
(vii)A guaranty agency must provide the borrower with an opportunity to object to terms of the rehabilitation of the borrower's defaulted loan. § 682.408 [Amended] 24. Section 682.408 is amended in paragraph
(c)by adding, after the words “§ 682.207(b)(1)(ii) and (iv)”, the phrase “, or Stafford Loan proceeds to a borrower in accordance with the requirements of § 682.207(b)(1)(i) and (ii),”. 25. Section 682.601 is amended by: A. Revising paragraph (a)(7). B. Revising paragraph (a)(8). C. In paragraph (a)(9), adding the words “one or more FFEL program” before the word “loans”. The revisions read as follows: § 682.601 Rules for a school that makes or originates loans.
(a)* * *
(7)Must, for any fiscal year beginning on or after July 1, 2006 in which the school engages in activities as an eligible lender, submit an annual compliance audit that satisfies the following requirements:
(i)With regard to a school that is a governmental entity or a nonprofit organization, the audit must be conducted in accordance with § 682.305(c)(2)(v) and chapter 75 of title 31, United States Code, and in addition, during years when the student financial aid cluster (as defined in Office of Management and Budget Circular A-133, Appendix B, Compliance Supplement) is not audited as a “Major Program” (as defined under 31 U.S.C. 7501) must, without regard to the amount of loans made, include in such audit the school's lending activities as a Major Program.
(ii)With regard to a school that is not a governmental entity or a nonprofit organization, the audit must be conducted annually in accordance with § 682.305(c)(2)(i) through (iii);
(8)Must use any proceeds from special allowance payments and interest payments from borrowers, interest subsidy payments, and any proceeds from the sale or other disposition of loans (exclusive of return of principal, any financing costs incurred by the school to acquire funds to make the loans, and the cost of charging origination fees or interest rates at less than the fees or rates authorized under the HEA) for need-based grants; and § 682.604 [Amended] 26. Section 682.604 is amended in the introductory text to paragraph
(h)by removing the words “or SLS” and adding, in their place, “, SLS or PLUS”. PART 685—WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM 27. The authority citation for part 685 continues to read as follows: Authority: 20 U.S.C. 1087a *et seq.* , unless otherwise noted. § 685.102 [Amended] 28. Section 685.102 is amended in the definition of *Estimated Financial Assistance* in paragraph (b)(1)(ix) by removing the parentheticals “(2)(iii)” and adding, in their place, the parentheticals “(2)(iv)”. § 685.200 [Amended] 29. Section 685.200(b) is amended by: A. Removing the paragraph (b)(1) designation. B. Redesignating paragraphs (b)(1)(i), (ii), (iii), (iv), and
(v)as paragraphs (b)(1), (2), (3), (4), and (5), respectively. C. In newly redesignated paragraph (b)(4), removing the words “and Stafford Ford/Loan Program; and” and adding, in their place, the words “Stafford/Ford Loan Program or under the Federal Subsidized and Unsubsidized Stafford Loan Program, as applicable; and”. D. In newly redesignated paragraph (b)(5), removing the words “does not have an adverse credit history in accordance with” and adding, in their place, the words “meets the requirements of”. § 685.203 [Amended] 30. Section 685.203 is amended by: A. In paragraph (a)(1)(i), removing the word “originated” and adding, in its place, the word “disbursed”. B. In paragraph (a)(1)(ii), removing the word “originated” and adding, in its place, the word “disbursed”. C. In paragraph (a)(1)(iii), removing the word “originated” and adding, in its place, the word “disbursed”. D. In paragraph (a)(2)(i), removing the word “originated” and adding, in its place, the word “disbursed”. E. In paragraph (a)(2)(ii), removing the word “originated” and adding, in its place, the word “disbursed”. F. In paragraph (c)(2)(v), removing the word “originated” and adding, in its place, the word “disbursed”. G. In paragraph (c)(2)(vi)(B), removing the word “originated” and adding, in its place, the word “disbursed”. H. In paragraph (c)(2)(vii), removing the word “originated” and adding, in its place, the word “disbursed”. 31. Section 685.208 is amended as follows: A. By adding a new paragraph (a)(2)(iv). B. By revising paragraph (g)(3). C. By revising paragraph (h)(2). § 685.208 Repayment plans.
(a)* * *
(2)* * *
(iv)No scheduled payment may be less than the amount of interest accrued on the loan between monthly payments, except under the income contingent repayment plan or an alternative repayment plan.
(g)* * *
(3)A borrower's payments under this repayment plan may be less than $50 per month. No single payment under this plan will be more than three times greater than any other payment.
(h)* * *
(2)A borrower's payments under this repayment plan may be less than $50 per month. No single payment under this plan will be more than three times greater than any other payment. § 685.217 [Amended] 32. Section 685.217 is amended by: A. In paragraph (c)(3)(ii)(B), removing the word “either”. B. In paragraph (c)(4)(ii)(B), removing the word “either”. 33. Section 685.220 is amended by: A. In paragraph (c)(1), removing the words “and to” immediately before the words “Federal Consolidation Loans” and adding, in their place, the words “and attributable to the portion of”, and by removing the words “if they are” and adding, in their place, the words “that is”. B. In paragraph (d)(1) introductory text, removing the words “, at the time the borrower applies for such a loan,”. C. In paragraph (d)(1)(i) introductory text, removing the word “The” and adding, in its place, the words “At the time the borrower applies for a Direct Consolidation Loan, the”. D. In paragraph (d)(1)(ii) introductory text, adding the words “At the time the borrower applies for the Direct Consolidation Loan,” immediately before the words “on the loans being consolidated,”. E. In paragraph (d)(1)(ii)(A), removing the words “six-month”. F. In paragraph (d)(1)(ii)(D), removing the words “Except as provided in paragraph (d)(4) of this section, in” and adding, in their place, the word “In”. G. Redesignating paragraphs (d)(1)(iii) and (d)(1)(iv) as paragraphs (d)(1)(iv) and (d)(1)(v), respectively. H. Adding a new paragraph (d)(1)(iii). I. Removing paragraph (d)(4). J. Redesignating paragraph (h)(1) as paragraph (h)(1)(i). K. Redesignating paragraph (h)(2) as paragraph (h)(1)(ii). L. Redesignating paragraph (h)(3) as paragraph (h)(2). The addition reads as follows: § 685.220 Consolidation.
(d)* * *
(1)* * *
(iii)On the loans being consolidated, the borrower is—
(A)Not subject to a judgment secured through litigation, unless the judgment has been vacated; or
(B)Not subject to an order for wage garnishment under section 488A of the Act, unless the order has been lifted. 34. Section 685.300 is amended by revising paragraph (b)(8) to read as follows: § 685.300 Agreements between and eligible school and the Secretary for participation in the Direct Loan Program.
(b)* * *
(8)Provide that eligible students at the school and their parents may participate in the programs under part B of the Act at the discretion of the Secretary for the period during which the school participates in the Direct Loan Program under part D of the Act, except that—
(i)A student may not receive a Direct Subsidized Loan and/or a Direct Unsubsidized Loan under part D of the Act and a subsidized and/or unsubsidized Federal Stafford Loan under part B of the Act for the same period of enrollment;
(ii)A graduate or professional student or a parent borrowing for the same dependent student may not receive a Direct PLUS Loan under part D of the Act and a Federal PLUS Loan under part B of the Act for the same period of enrollment; § 685.303 [Amended] 35. Section 685.303(e) introductory text is amended by removing the words “or Direct Unsubsidized Loan” and adding, in their place, the words “, Direct Unsubsidized, or Direct PLUS Loan”. [FR Doc. E6-18183 Filed 10-31-06; 8:45 am] BILLING CODE 4000-01-P 71 211 Wednesday, November 1, 2006 Rules and Regulations Part IV Department of Education 34 CFR Parts 668, 690, and 691 Student Assistance General Provisions; Federal Pell Grant Program; Academic Competitiveness Grant Program; and National Science and Mathematics Access to Retain Talent Grant Program; Final Rule DEPARTMENT OF EDUCATION 34 CFR Parts 668, 690, and 691 RIN 1840-AC86 Student Assistance General Provisions; Federal Pell Grant Program; Academic Competitiveness Grant Program; and National Science and Mathematics Access to Retain Talent Grant Program AGENCY: Office of Postsecondary Education, Department of Education. ACTION: Final regulations. SUMMARY: The Secretary is adopting as final, with changes, interim final regulations in: 34 CFR part 691 for the Academic Competitiveness Grant
(ACG)and National Science and Mathematics Access to Retain Talent Grant (National SMART Grant) programs; 34 CFR part 668 (Student Assistance General Provisions); and 34 CFR part 690 (Federal Pell Grant Program). These final regulations are needed to implement provisions of the Higher Education Act of 1965 (HEA), as amended by the Higher Education Reconciliation Act of 2005 (HERA), Pub. L. 109-171, enacted on February 8, 2006, 20 U.S.C. 1070a-1. These final regulations for the ACG and National SMART Grant programs specify the eligibility requirements for a student to apply for and receive an award under these programs for the 2007-2008 award year. For regulations that will take effect for the 2008-2009 award year and subsequent award years, the Secretary intends to conduct negotiated rulemaking, as required under section 492 of the HEA. DATES: *Effective Date:* These final regulations are effective July 1, 2007. *Implementation Date:* The Secretary has determined, in accordance with section 482(c)(2)(A) of the HEA (20 U.S.C. 1089(c)(2)(A)), that institutions of higher education (institutions), State educational agencies (SEAs), and local educational agencies
(LEAs)that administer title IV, HEA programs may, at their discretion, choose to implement all of the provisions of these final regulations on or after November 1, 2006, including for the 2006-2007 award year. For further information, see “Implementation Date of These Regulations” under the SUPPLEMENTARY INFORMATION section of this preamble. FOR FURTHER INFORMATION CONTACT: Jacquelyn Butler, U.S. Department of Education, 1990 K Street, NW., Room 8053, Washington, DC 20006-8544. Telephone:
(202)502-7890. Sophia McArdle, U.S. Department of Education, 1990 K Street, NW., Room 8019, Washington, DC 20006-8544. Telephone:
(202)219-7078. If you use a telecommunications device for the deaf (TDD), you may call the Federal Relay Service
(FRS)at 1-800-877-8339. Individuals with disabilities may obtain this document in an alternative format ( *e.g.* , Braille, large print, audiotape, or computer diskette) on request to the contact person listed under FOR FURTHER INFORMATION CONTACT . SUPPLEMENTARY INFORMATION: On July 3, 2006, the Secretary published interim final regulations (71 FR 37990) implementing the ACG and National SMART Grant programs added to the HEA by the HERA. The interim final regulations were effective on August 2, 2006. At the time the interim final regulations were published, the Secretary requested public comment on whether changes to the regulations were warranted. The July 3, 2006, interim final regulations included a discussion of the major issues covered by the regulations. The following list summarizes those issues and identifies the pages of the preamble to the July 3, 2006, interim final regulations on which a discussion of those issues can be found: The Secretary repeated in the ACG and National SMART Grant regulations several definitions and sections from the Federal Pell Grant Program regulations (71 FR 37990-37991). The Secretary specified that only students who are United States citizens are eligible to receive ACG and National SMART Grants (71 FR 37991). The Secretary detailed the requirements for institutions to follow when resolving overpayments to students under the ACG and National SMART Grant programs (71 FR 37991). The Secretary defined *eligible major* for purposes of the National SMART Grant Program (71 FR 37991). The Secretary defined *eligible program* for the ACG and National SMART Grant programs (71 FR 37991). The Secretary specified the duration of student eligibility for the ACG and National SMART Grant programs by academic year (71 FR 37991). The Secretary delineated the institutional participation requirements, including a requirement that an institution that participates in the Federal Pell Grant Program and offers an educational program that is an eligible program for the ACG or National SMART Grant programs, must participate in the ACG and National SMART Grant programs (71 FR 37992). The Secretary specified the circumstances under which correspondence courses may be applied toward a student's full-time enrollment status in a noncorrespondence study program (71 FR 37992). The Secretary delineated the requirements for a student to attend more than one institution and receive an ACG or National SMART Grant (71 FR 37992). The Secretary specified the procedures that a student must follow when applying for an ACG or National SMART Grant (71 FR 37992). The Secretary set forth the ACG and National SMART Grant general student eligibility requirements (71 FR 37992). The Secretary specified the application of an academic year to a student's eligibility for an ACG and National SMART Grant (71 FR 37992). The Secretary provided the grade point average
(GPA)requirements for receiving an ACG or National SMART Grant (71 FR 37993). The Secretary provided the circumstances under which a student is not eligible for an ACG in the student's first academic year of enrollment if the student previously enrolled in a program of undergraduate education (71 FR 37993-37994). The Secretary specified the institutional requirements for documenting a student's completion of a rigorous secondary school program of study (71 FR 37994-37995). The Secretary stated the student requirements for declaring an eligible major in order to be eligible for a National SMART Grant (71 FR 37994). The Secretary provided guidelines for recognizing a rigorous secondary school program of study for ACG eligibility (71 FR 37994). The Secretary delineated how eligible majors will be determined and their duration for the National SMART Grant Program (71 FR 37995). The Secretary specified how the maximum ACG and National SMART Grants will be determined each year (71 FR 37995-37996). The Secretary stipulated how ACG and National SMART Grant funds are treated in relation to other aid received (71 FR 37996). The Secretary detailed how an institution calculates an ACG or National SMART Grant payment for a payment period (71 FR 37996). The Secretary specified how an institution calculates an ACG or National SMART Grant payment for a student who transfers from another institution (71 FR 37996). The Secretary detailed the requirements that govern an institution's determination of a student's eligibility for a disbursement of an ACG or National SMART Grant, including provisions regarding changes in a student's GPA, payment prior to receipt of a GPA, payments for nonterm self-paced programs, and, for National SMART Grants, changes to a student's major (71 FR 37996-37997). The Secretary specified how often an institution may pay a student (71 FR 37997). *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 regulations that an entity subject to the regulations may choose to implement earlier and the conditions under which the entity may implement the provisions early. The Secretary is using the authority granted to her under section 482(c) to designate all of the regulations included in this document for early implementation, beginning with the 2006-2007 award year, at the discretion of each institution, SEA, and LEA. Analysis of Comments and Changes The regulations in this document were developed through the analysis of comments received on the interim final regulations published on July 3, 2006. The Secretary invited comments on the interim final regulations, and we received 80 comments. An analysis of the comments and of the changes in the regulations since publication of the interim final regulations follows. We group major issues according to subject, with appropriate sections of the regulations referenced in parentheses. Generally, we do not address technical and other minor changes. General Comments *Comments:* One commenter was concerned that the ACG and National SMART Grant program requirements would intrude on the academic policies of institutions with regard to credit accrual, calculation of GPA, determinations of academic progress, the treatment of transferred credits, and academic year standing. The commenter believed that permitting institutions to follow current business processes and practices would be in accord with current delivery systems and be clear to students. *Discussion:* The Secretary has no intention of interfering with institutions' academic policies and administration. Many of the program requirements about which the commenter is concerned are required by the HEA. The program requirements in the regulations are necessary to deliver ACGs and National SMART Grants to students and do not mandate any changes in institutional academic policies or administration. *Changes:* None. Section 691.2 Definitions *Comments:* Several commenters believed that the term *Scheduled Award* is inappropriately applied to the ACG and National SMART Grant programs. The commenters believed that the term is confusing because the term relates to award year eligibility for Federal Pell Grants, which are payable for part-time enrollment, but is being applied to academic year eligibility for ACGs and National SMART Grants, which are payable for full-time enrollment only. Some commenters acknowledged the Secretary's need for a term that could be applied if the grants were subject to ratable reduction, but suggested that the Secretary use a different term. Others believed that the term would introduce unnecessary complexity into the ratable reduction process. *Discussion:* The Secretary believes that it is prudent to keep the ACG and National SMART Grant programs as similar to the Federal Pell Grant Program as possible within the constraints of the law. The Secretary believes the term *Scheduled Award* is appropriately applied to all three programs, as it refers to the amount a full-time student can be awarded for a full academic year, as in the Federal Pell Grant Program. Also, the term is appropriate as funds are allocated by award year, and the Secretary establishes the maximum Scheduled Award for that award year. Because the programs require only full-time enrollment as an eligibility criterion, there will not be Payment and Disbursement Schedules published as there are for the Federal Pell Grant Program, but the concept of *Scheduled Award* does apply with regard to such issues as remaining eligibility for transfer students and ratable reductions. *Changes:* None. *Comments:* Several commenters believed that it was unclear whether proprietary institutions could participate in the ACG and National SMART Grant programs. *Discussion:* Under the regulations, an otherwise eligible proprietary institution that offers an *eligible program* as defined in § 691.2 may participate in the ACG and National SMART Grant programs. Section 691.2 specifies that these regulations use the definition of *eligible institution* in 34 CFR part 600. This definition includes institutions of higher education, as defined in § 600.4; proprietary institutions, as defined in § 600.5; and postsecondary vocational institutions, as defined in § 600.6. *Changes:* None. *Comments:* Several commenters believed that title IV-eligible certificate programs should be included in the definition of an *eligible program.* The commenters argued that, while the law provides that a student must be enrolled or accepted for enrollment in a two- or four-year degree granting institution to be eligible for an ACG, or in a four-year degree granting institution to be eligible for a National SMART Grant, it does not prohibit a student from receiving an ACG or National SMART Grant for attending a certificate program offered by such a degree-granting institution. Many commenters asserted that certificate programs are just as important, if not more important, than degree programs to the future economic growth of States and the nation, and the students just as deserving of these grants as those enrolled in degree programs. In addition, the commenters asserted that many certificate programs attract the same caliber of students as those enrolled in degree programs. Several commenters noted that many students who initially seek certificates subsequently transfer into degree programs. A few commenters suggested including in the definition of *eligible program* certificate programs that are fully transferable into baccalaureate degree programs and certificate programs that are fully acceptable for credit toward an associate's degree. One commenter believed that, if certificate programs were not considered eligible outright, then the definition of an *eligible program* should include one-year programs that are fully acceptable for credit toward an associate's degree. The commenter asserted that, as with a two-year program that is fully acceptable for credit toward a bachelor's degree, the end result is an acceptable two- or four-year degree. One commenter noted that the Department's position is counter to the longstanding policy permitting an institution to designate a program as eligible for all title IV programs. Several commenters supported including in the definition of an *eligible program* graduate degree programs that include at least three academic years of undergraduate education. One commenter asked the Secretary to clarify a student's eligibility for a National SMART Grant if the student's status has changed to graduate student because he or she is in the fourth year of a graduate program that contains at least three undergraduate years. One commenter believed that the definition of an *eligible program* should not include a graduate degree program that includes at least three academic years of undergraduate education. The commenter noted that this interpretation appears broader than the requirements for Federal Pell Grant eligibility for programs that include a fifth year that counts toward a graduate degree program, primarily education certification. The commenter suggested that the regulations reference § 668.8, which defines an *eligible program* for other title IV, HEA eligibility. *Discussion:* The Secretary has determined that because the HEA limits eligibility to a student enrolled or accepted for enrollment in a two- or four-year degree-granting institution, eligibility must be limited to two- or four-year degree programs, as defined in § 691.2. Therefore, certificate programs do not qualify as eligible programs for ACGs. However, a student in a two-academic-year program acceptable for full credit toward a bachelor's degree may qualify, provided he or she meets other eligibility criteria. Because only students attending four-year institutions are eligible for National SMART Grants and a student must be enrolled in the third and fourth academic years to be eligible, the Secretary believes that a student must be enrolled in at least a bachelor's degree program to be eligible for a National SMART Grant. Section 401A(c)(3)(C) of the HEA, in defining the term *eligible student* , refers to a student enrolled or accepted for enrollment in specific years of a program of undergraduate education. Although a graduate degree program that includes at least three years of undergraduate education may be an eligible program for ACG and National SMART Grant purposes, under section 401A(c) of the HEA, a student enrolled in such a program is eligible for an ACG or National SMART Grant only while the institution considers the student to be an undergraduate student in accordance with the definition of *undergraduate student* in § 691.2. Once a student is considered to be a graduate student, the student is no longer eligible for a National SMART Grant. With respect to the definition of an *eligible program* , it is important to define eligibility for students enrolled in a program that leads directly to a graduate degree without first awarding a bachelor's degree. Students enrolled in these programs have a period of undergraduate work for which they should be eligible for ACG and National SMART Grant funds notwithstanding the fact that the programs are structured differently than the typical separate degree programs for undergraduate and graduate programs. For programs that start at the undergraduate level and lead directly to a graduate degree without defining when the student is considered an undergraduate and graduate student, the definition in § 691.5 allows eligible students to receive the appropriate funds from these two grant programs. *Changes:* None. Section 691.6 Duration of Student Eligibility—Undergraduate Course of Study *Comments:* Many commenters objected to the Department's decision to base the duration of eligibility on an academic year as defined for purposes of the title IV, HEA programs, as measured in weeks of instructional time and, for undergraduate programs, credit or clock hours. These commenters stated that using the title IV, HEA definition of *academic year* was administratively burdensome and unworkable. Some commenters found the definition of *academic year* in part 691 to be inconsistent with other uses of the term in administering title IV, HEA programs. One commenter believed that only the credit hour portion of the definition of academic year should be used. Commenters also were concerned that a student's title IV, HEA academic year may not match the student's grade level used in the other title IV, HEA programs such as the FFEL and Direct Loan programs. The commenters recommended that the Secretary rely on grade level progression as in the FFEL and Direct Loan programs to determine the first, second, third, or fourth year of a student's enrollment. *Discussion:* Under section 401A(c)(3) of the HEA, a student is eligible for an ACG in the student's “first academic year of a program of undergraduate education” and “second academic year of a program of undergraduate education” and for a National SMART Grant in the “third or fourth academic year of a program of undergraduate education.” The term *academic year* is defined in section 481(a)(2) of the HEA as amended by the HERA and explicitly applies to all title IV, HEA programs. The definition provides that an academic year contains a minimum number of weeks of instructional time and a minimum number of credit or clock hours. The Secretary has no flexibility to deviate from this defined term. Contrary to the assertions of some commenters, the Secretary believes that the interpretation of the term *academic year* in the regulations is not inconsistent with other title IV uses of the term. For example, the HEA provisions governing loan limits provide greater flexibility in this regard than does section 401A for ACGs and National SMART Grants. Specifically, section 428(b)(1)(A) of the HEA sets loan limits based on whether the student has “successfully completed” a “year” of a program of undergraduate education. The Secretary has interpreted the term “successfully completed the first year of a program of undergraduate education” in section 428 to relate to a student's grade level, as determined by the institution. The Secretary did not, in so doing, interpret the term *academic year* as referring to the borrower's year in college. Instead, the Secretary interpreted the entirely different phrase “first year.” The Secretary has no flexibility to interpret section 401A in a similar fashion, because, unlike section 428, section 401A specifically uses the statutorily defined term *academic year.* The Secretary cannot limit the definition to the credit hour provisions, as was suggested by the commenters, because the statutory definition of *academic year* requires a minimum number of weeks of instructional time, in addition to the completion of a minimum number of credit or clock hours. *Changes:* None. *Comments:* Some commenters were concerned with the effect previous enrollment in eligible programs at other institutions and the amount of transfer credits accepted would have on a student's academic progression. One commenter questioned whether academic progression was based on attendance in each eligible program separately, or on the student's attendance in all eligible programs at any institution. Another commenter thought institutions should be allowed to count the credits that are being accepted for a transfer student in the same way credits are counted for other programs, rather than trying to monitor previous credits differently for ACGs and National SMART Grants. *Discussion:* For purposes of ACGs and National SMART Grants, a student's academic progression is not based on the student's enrollment in each eligible program separately, but rather is based on all eligible programs in which a student has enrolled over the course of the student's undergraduate education. An institution is responsible for determining whether any previous enrollment by a student as measured in weeks of instructional time and hours affects the student's eligibility for an academic year. If the student previously received an ACG or National SMART Grant for an academic year, or a portion of an academic year, an institution must consider the student to have completed an eligible program through that academic year, or that portion of an academic year, in weeks of instructional time and hours, unless the institution has information to the contrary. For example, if an institution accepts a transfer student who has received a first-year ACG Scheduled Award, the institution must consider the student to have completed his or her first year of ACG eligibility regardless of the number of transfer credits the institution accepts. To the extent a determination does not conflict with information related to grants previously received, when determining the appropriate academic year for a transfer student, the institution may rely on the transfer credits accepted, along with the estimated number of weeks of instructional time completed in proportion to the academic year of the student's eligible program at the institution to which the student transferred. *Changes:* The Secretary has amended § 691.6(a) and
(b)to clarify that a student's academic year progression is based on attendance in all eligible programs in which the student has enrolled over the course of the student's undergraduate education. *Comments:* Several commenters were concerned with the treatment of Advanced Placement
(AP)and International Baccalaureate
(IB)credits and transfer credits. One commenter sought clarification of the treatment of AP and IB credits in relation to the requirement that a student must successfully complete the hours of an academic year along with the weeks of instructional time to progress to the next academic year. Some commenters were concerned that including AP and IB credits, along with transfer credits earned while enrolled in high school, would discourage students from taking these courses in high school if they resulted in a student being denied eligibility for a grant. *Discussion:* AP or IB credits accepted toward a student's eligible program count toward the completion of the hours of an academic year. Because AP and IB credits are earned based on secondary school courses and subsequent tests, there are no weeks of instructional time in postsecondary education associated with these credits. A student must successfully complete both measures of an academic year to progress to the next academic year. A student who entered college with 24 semester hours of AP credits toward an eligible program may be starting to earn hours toward completing the second academic year but would still be in the first academic year because, for purposes of an ACG or National SMART Grant, no weeks of instructional time while enrolled in an eligible program would have elapsed. Similarly, a student who entered college with 24 semester hours earned as a nonregular student in an undergraduate program while enrolled in high school, or possibly after high school, would also be in the position of starting to earn the second academic year of credits but would still be in the first academic year, because, for purposes of an ACG or National SMART Grant, no weeks of instructional time while enrolled in an eligible program would have elapsed. As a result, students will not be discouraged from enrolling in AP or IB courses in high school or in college courses as a nonregular student while in high school because doing so would not affect their eligibility for an ACG or National SMART Grant. *Changes:* None. *Comment:* One commenter recommended that “grade level” be determined once at the beginning of each award year and that the student maintain that level of eligibility for the year as long as the student is full-time. *Discussion:* The Secretary does not agree that the regulations should be changed. Although a single annual determination may simplify the programs' administration, it would deny an otherwise eligible student an additional grant if the student progresses to another academic year during the award year and qualifies for another Scheduled Award. *Changes:* None. Section 691.7 Institutional Participation *Comments:* Several commenters believed that the requirement that an institution participate in the ACG and National SMART Grant programs in order to continue its participation in the Federal Pell Grant Program is an infringement on institutional autonomy and is not supported by the statute. Commenters noted that even in the FFEL and Direct Loan programs—where, similar to the Federal Pell Grant, ACG, and National SMART Grant programs, one part of the law encompasses several programs—institutional choice of participation is allowed. Several commenters stated that it was their understanding that the longstanding policy for the title IV, HEA programs allows an institution to designate a particular educational program as eligible for all title IV programs or only for some title IV, HEA programs and recommended that the Secretary continue this policy. With so little lead time for implementation, the commenters had concerns about the impact of the mandatory participation on an institution's administrative capability. Several commenters objected to the exclusion of an administrative cost allowance for the ACG and National SMART Grant programs, particularly because of the administrative burden of the required rapid implementation. Some commenters believed that the Secretary was acting inconsistently by disallowing the administrative cost allowance for the ACG and National SMART Grant programs, as the Secretary apparently otherwise considers the Federal Pell Grant, ACG and National SMART Grant programs, all of which fall under subpart 1 of part A, to be conjoined, and section 489(a) of the HEA requires the Secretary to pay an administrative cost allowance “equal to $5 for each student at that institution who receives assistance under subpart 1 of part A.” *Discussion:* The Secretary believes that requiring an institution to participate in the ACG and National SMART Grant programs in order to participate in the Federal Pell Grant Program when eligible programs are offered at the institution is consistent with the statute's requirement that the Secretary award grants to Pell-eligible students. The Secretary believes that Congress intended that financially needy students receive all of the grants to which they are entitled under the HEA. Requiring institutional participation, thus, assures that students otherwise eligible for ACGs and National SMART Grants receive their awards. The Secretary believes that the mandatory participation in the Federal Pell Grant, ACG, and National SMART Grant programs is distinguishable from the flexibility given to institutions to choose whether to participate in the FFEL or Direct Loan Programs because needy students may be eligible for both a Federal Pell Grant and an ACG or a National SMART Grant concurrently, while students may only obtain loans under either the FFEL program or Direct Loan program during a term. Under the HEA, an institution receives an administrative cost allowance for each student receiving a Federal Pell Grant. Because students receiving ACGs and National SMART Grants are receiving Federal Pell Grants, the institution does not receive an additional administrative cost allowance. *Changes:* None. Section 691.11 Payments From More Than One Institution *Comments:* Two commenters disagreed with the requirement that the same school disburse Federal Pell Grant funds and ACG and National SMART Grant funds when a student is attending more than one institution under a written agreement. *Discussion* : The Secretary believes that it is appropriate to require that the same institution that administers a student's ACG or SMART Grant award administer the student's Federal Pell Grant award, because the programs are related in many ways. Several requirements related to the administration of the Federal Pell Grant Program and the ACG and National SMART Grant programs necessitate that the same institution disburse funds from these programs. Requirements such as that a student receive a Federal Pell Grant disbursement in the same award year in which the student receives an ACG or National SMART Grant, the requirement that an institution pay only on the transaction that is the valid institutional student information record
(ISIR)(and only the institution paying the Federal Pell Grant will know which ISIR is the valid one), and the requirements related to reporting of verification records for the Federal Pell Grant Program make this choice necessary. The Secretary is aware that there may be a few situations in which a student is attending more than one institution under a written agreement. However, based on these factors, in the very limited circumstances in which different institutions would choose to administer and disburse funds from different title IV, HEA programs, the regulations under this section appropriately mandate that the institution that chooses to disburse Federal Pell Grant Program funds must also disburse the ACG and National SMART Grant funds. *Changes:* None. Section 691.12 Application *Comments:* Several commenters recommended that the 2007-2008 Free Application for Federal Student Aid (FAFSA) should request the information for a student to self-identify that he or she has successfully completed a rigorous secondary school program of study as provided for in § 691.12(b)(2). *Discussion:* The Secretary agrees that this information should be included on the FAFSA to the extent practicable. The 2007—2008 electronic FAFSA form (FAFSA on the Web) collects this information, and students are able to provide the necessary information as a part of the application. More than 90 percent of all students apply electronically using FAFSA on the Web or through their institutions. The small minority of applicants using a paper FAFSA currently receive notification by mail or, if an e-mail address is provided, an e-mail that the student may call a toll-free telephone number or go to a web site to provide the necessary information. The 2007-2008 FAFSA has already been approved by OMB under the Paperwork Reduction Act, but we will consider future improvements to the paper FAFSA during the next clearance cycle. *Changes:* None. *Comments:* Two commenters recommended that the regulations clarify that an institution has the authority to request additional application information, similar to the Secretary's authority. *Discussion:* Under section 483(a) of the HEA only the Secretary has the authority to require a student to provide information concerning the student's need and eligibility for the title IV, HEA programs, and the Secretary is required to collect the student's information on the FAFSA. Institutions may not use any additional application data collection beyond the FAFSA to determine a student's title IV eligibility. However, an institution does have the authority under 34 CFR 668.16(f) and 668.54(a)(3) of the Student Assistance General Provisions to require a student to provide any information or documentation necessary to resolve any concerns regarding a student's eligibility or application information as well as the authority to require documentation directly from a cognizant authority regarding the completion of a rigorous secondary school program of study under § 691.15(b)(2)(ii). The Secretary does not believe that these authorities need to be repeated in § 691.12. *Changes:* None. *Comments:* One commenter recommended that all application requirements appear only in the Federal Pell Grant regulations to eliminate the possibility of conflicting language. *Discussion:* Section 691.12, while similar to the Federal Pell Grant Program regulations when possible, does include provisions specific only to the ACG and National SMART Grant programs. The Secretary believes that regulations specific to the ACG and National SMART Grant programs should not be included in the Federal Pell Grant Program regulations, as it may cause confusion. *Changes:* None. Section 691.15 Eligibility To Receive a Grant Citizenship *Comments:* Several commenters objected to the requirement that students must be U.S. citizens in order to qualify for an ACG or National SMART Grant. One commenter stated that preventing permanent residents from receiving a National SMART Grant excludes from consideration more than twenty percent of Federal Pell Grant recipients who are majoring in the National SMART Grant fields of study. *Discussion:* Section 401A(c)(1) of the HEA specifies that only U.S. citizens are eligible for ACG and National SMART Grants. The Secretary does not have the authority to change this requirement through regulations. *Changes:* None. Federal Pell Grant Eligibility *Comments:* A number of commenters objected to the requirement that an eligible student must be receiving a Federal Pell Grant disbursement for the same payment period in which he or she will receive the ACG or National SMART Grant. They stated that the statute only requires that a student be eligible for a Federal Pell Grant, not receiving a Federal Pell Grant for the same payment period. These commenters believed that the Secretary exceeded her statutory authority and arbitrarily denied a Federal entitlement to otherwise eligible students. The commenters were especially concerned about eligibility for payment periods that cross award years, pointing out that there are various situations in which students who attend college year-round may have exhausted their Federal Pell Grant eligibility yet still have remaining eligibility for an ACG or National SMART Grant. For these Pell-eligible students who have already received a full scheduled Federal Pell Grant award, the receipt of an ACG or National SMART Grant may be of critical importance. In addition, some students attending low-cost institutions may have substantial outside scholarship assistance that reduces their need and resultant ACG or National SMART Grant during the regular fall through spring academic calendar, but may have unmet need during the summer term. Some commenters suggested that it would be more reasonable to define Federal Pell Grant eligibility for this purpose in terms of an expected family contribution
(EFC)within the range for a Federal Pell Grant award for the award year in which the payment period is placed. *Discussion:* The Secretary agrees with the commenters that students should not have to receive a Federal Pell Grant during the same payment period to be eligible for an ACG or National SMART Grant. Rather, students who would otherwise be eligible for an ACG or National SMART Grant award but have already exhausted their Federal Pell Grant eligibility for the award year should be eligible to receive an ACG or National SMART Grant award as long as they received a Federal Pell Grant in the same award year. *Change:* Section 691.15(a)(2) has been revised to require that a student receive a Federal Pell Grant in the same award year, rather than the same payment period, to be eligible for an ACG or National SMART Grant. The Secretary has made conforming changes in §§ 691.65(a)(2) and 691.80(a) to reflect this change in the ACG and National SMART Grant student eligibility requirements. In addition, the Secretary has also made conforming changes to Subpart E of the Student Assistance General Provisions on verification of student aid application information by amending 34 CFR 668.51, 668.52, 668.54, 668.55, 668.58, 668.59, 668.60, and 668.61. These changes are necessary to clarify that these sections apply to the ACG and National SMART Grant programs to ensure the synchronous administration of these programs. Full-Time Enrollment *Comments:* One commenter expressed concern that the ACG and National SMART Grant regulations do not serve nontraditional students. The commenter believed that assistance from these programs should be available to students who enroll less than full-time. *Discussion:* Section 401A(c) of the HEA requires that a student must be enrolled full-time in order to be eligible to receive assistance under the ACG and National SMART Grant programs. The Secretary does not have the authority to change this requirement through regulations. *Changes:* None. Rigorous Secondary School Program of Study Eligibility *Comments:* One commenter asked whether a student who has completed his or her secondary school coursework in December but who graduated after January 1, 2005, or 2006, is eligible for an ACG. Another commenter was concerned that students who are not of traditional college age would not be eligible for an ACG. *Discussion:* The requirement that a student have successfully completed a rigorous secondary school program of study after January 1, 2006, for a first-year student and after January 1, 2005, for a second-year student in order to receive an ACG is in section 401A(c)(3) of the HEA. The Secretary interprets the statute as requiring a student to have graduated in order to complete a rigorous secondary school program of study. For example, if a student completed the coursework of a rigorous secondary school program in December 2005, but actually graduated from the program after January 1, 2006, the student is eligible to receive a first year ACG. Although in the early years of the ACG program eligible students will be of traditional college age, as time goes by, students who are not of traditional college age may establish eligibility provided they have completed a rigorous secondary school program of study after the dates provided in the statute. *Changes:* None. Grade Point Average *Comments:* Several commenters claimed that how and when to compute a cumulative GPA is confusing. One commenter wanted clarification on whether GPA for the student's eligible program meant cumulative GPA, major GPA, or something else. This commenter suggested removing the reference to eligible program if the Secretary intended a cumulative GPA computation. Some commenters supported the Secretary's interpretation of the GPA calculation for National SMART Grant eligibility in § 691.15(c)(3). One commenter pointed out that, for National SMART Grants, the Secretary did not follow the language from section 401A(c)(3)(C)(ii) of the HEA, which provides that GPA is determined in the coursework required for the major, but instead required GPA to be determined for the coursework required for a student's eligible program. The commenter supported the burden reduction in this case, but objected to the regulatory approach. Another commenter believed that the GPA for ACGs should be defined the same way it is for National SMART Grants. Yet another commenter indicated that, for National SMART Grants, institutions should have the flexibility to review academic major and GPA no more frequently than is required by institutions to monitor students under their Satisfactory Academic Progress
(SAP)policy, so as to align these two academically related monitoring policies. *Discussion:* As discussed in the preamble to the interim final regulations, the Secretary believes that a student's GPA for purposes of eligibility for the ACG and National SMART Grant programs should be calculated using the same standards that are used to calculate GPA for other academic and title IV purposes at the institution. The Secretary does not believe scores on tests in AP, IB, or College Level Examination
(CLEP)programs should be converted to grades for any purpose under the ACG or National SMART Grant programs. For National SMART Grants in particular, the Secretary believes that the student must meet the GPA requirement based on all courses required for the student's eligible program, not just those required for the eligible major. The Secretary believes this approach is appropriate because it minimizes institutional burden when determining whether a student meets the GPA requirement and is in accord with other title IV, HEA program requirements related to GPAs. GPA cannot be computed the same way for the ACG Program as it is for the National SMART Grant Program because section 401A(c)(3) of the HEA requires a student to meet the necessary GPA only at the end of the student's first academic year for an ACG, but throughout the student's third and fourth academic years for a National SMART Grant. The Secretary believes that the monitoring requirements for SAP would not be adequate to determine eligibility for an ACG or National SMART Grant based on cumulative GPA. Under § 668.32(f), although a student may be making satisfactory progress according to the institution's published SAP standards under § 668.16(e), and if applicable, under § 668.34, these standards allow a student to maintain a GPA below the 3.0 (on a 4.0 scale) GPA required to be eligible for an ACG or National SMART Grant. In addition, § 668.16(e)(4) provides that an institution must determine whether a student is making satisfactory progress at the end of each increment, which must not exceed the lesser of one academic year or one-half the published length of the program. In contrast, section 401A(c)(3)(C)(ii) of the HEA requires that a student meet the GPA requirement throughout the student's third and fourth academic year. Review of a student's GPA under the standards set forth in § 668.16(e) would not ensure that a student is meeting the requirements of the National SMART Grant Program. *Changes:* None. Transfer Student GPA *Comments:* We received several comments related to the GPA of transfer students. One commenter supported the Secretary's interpretation for transfer GPA calculations. Another commenter asked for clarification on how to treat GPA in the case of transfer students who are admitted for summer and then take a 3-credit summer course. Three commenters requested an option to use the GPA earned at prior colleges as the indicator of sufficient academic performance for payment for the first term at the new college to determine eligibility for an ACG or National SMART Grant because, at many colleges, it would require a significant reengineering of the business process to calculate a GPA based solely on courses accepted toward the program. The commenters believed that cumulative GPA from other institutions should sufficiently demonstrate academic achievement. Another commenter questioned the fairness of the transfer hours GPA policy. The commenter was concerned that students who do poorly at the first institution could transfer to gain ACG or National SMART Grant eligibility, because only the hours accepted by the new institution would be considered and all poor grades excluded. The student who does poorly and stays at the first institution would not be eligible, but the student who transfers could be. *Discussion:* The interim final regulations explain that, in the case of a transfer student, for the first payment period, institutions must rely on the grades of the courses from the prior institution accepted toward the student's eligible program. Transfer credits that were awarded through programs such as AP, IB, or CLEP programs should not be converted to grades to determine a student's GPA for purposes of eligibility for an ACG or National SMART Grant in the student's initial payment period after transferring. Once a student has the grades for a payment period at the new institution for coursework taken toward the eligible program, the institution may use the GPA calculated from those grades only, unless there is an institutional policy that a student's GPA at the new institution include transfer grades. While the Secretary agrees that cumulative GPA from a prior institution does serve as an academic performance indicator, the purpose of calculating GPA based solely on coursework accepted toward the eligible program is to ensure student eligibility for the ACG or National SMART Grant programs. Because this GPA calculation is used solely to determine a student's eligibility under these programs for the initial payment period of enrollment, there is no intrusion into institutional grading policy by the Secretary. Finally, the Secretary believes that the transfer hours GPA requirement in § 691.15(d) of the interim final regulations is an equitable means of establishing a transfer student's eligibility. Students who perform poorly overall will likely still transfer in a GPA that is below 3.0. Thus, these students would not be significantly more likely to receive a grant than a student who did poorly but stayed at the same institution. *Changes:* None. *Comments:* One commenter asked the Secretary to clarify whether an institution is required to follow its standards for academic and title IV, HEA program purposes to determine a transfer student's GPA once it has established eligibility using grades in coursework that the institution accepts for the student's first payment period. For example, if an institution normally does not use grades on transferred credit for SAP or other purposes, does the institution have the option of using such grades for ACG and National SMART Grant recipients only? *Discussion:* An institution's policies for the administration of the title IV, HEA programs generally must be the same for all title IV, HEA programs. An institution may not establish a SAP policy that treats grades on transferred credits one way for ACG and National SMART Grant recipients, but another way for recipients of other title IV aid. *Changes:* None. Prior Enrollment in a Postsecondary Educational Program *Comments:* Several commenters believed that students who attended postsecondary programs while completing high school should be considered first-year students for ACG eligibility purposes. Two commenters noted that some colleges offer the opportunity for a high school student to earn an associate's degree while completing high school. One commenter stated that it was possible for some of these students to enroll in college programs that only accept some of the credits the student has earned while in high school and, given the institution's definition of an academic year, the student may qualify as a first-year student. The commenter believed that, if the institution was treating the student as a first-year student, the student should be eligible for a first-year ACG. One commenter asked the Secretary to clarify whether a student who attended a postsecondary institution as part of a State-recognized dual-enrollment program is considered to have been enrolled as a regular student for purposes of determining prior enrollment. A few commenters asked for clarification of the Secretary's policy on prior enrollment. One commenter requested clarification as to whether a student who earned an associate's degree at the same time as he or she earned a high school diploma would be eligible for a second-year ACG, provided the transfer credits were less than what would be required to establish the student as a junior. The commenter also wanted to know if the same student would be eligible for a first-year ACG if he or she did not earn the associate's degree, and the transfer credits were less than what would be required to establish the student as a sophomore. Several commenters believed these final regulations should reflect guidance from the Department that prior enrollment in an undergraduate program after completion of high school would not affect a student's first year eligibility for an ACG and asked the Secretary to specify an effective date for this guidance. *Discussion:* The Secretary agrees that the regulations should be clarified to reflect that only enrollment as a regular student in an eligible program while in secondary school disqualifies a student from receiving a first-year ACG in the student's first academic year of postsecondary education. Under the Department's interpretation of section 401A(c)(3)(A), the term “previously” in the phrase “previously enrolled in a program of undergraduate education” in section 401A(c)(3)(A)(ii) relates to completion of a rigorous secondary school program of study in section 401A(c)(3)(A)(i). A student is considered to have been previously enrolled in an eligible program if the student was admitted into that program as a regular student while still enrolled in a secondary school program of study. A regular student is a person who is enrolled or accepted for enrollment at a postsecondary educational institution for the purpose of obtaining a degree, certificate, or other recognized postsecondary educational credential offered by that institution. Therefore, a high school student who was enrolled in a dual-enrollment program with the purpose of obtaining an associate's degree is considered to have been enrolled as a regular student, whether the student actually earned the associate's degree or not. Thus, the student was previously enrolled in an eligible program of undergraduate education and is not eligible for a first- year ACG. Such a student may be eligible for a second-year ACG if his or her transfer credits were less than what would be required to establish the student as enrolled for the student's third title IV, HEA academic year. However, if an otherwise eligible student took courses that were part of an associate's degree program, but was not enrolled for the purpose of obtaining the associate's degree ( *i.e.* , was not a regular student), the student would be eligible for a first-year ACG. *Changes:* Section 691.15(b)(1)(ii)(B) has been revised to clarify that a student is not eligible for a first-year ACG if the student was previously enrolled as a regular student in an eligible program while still enrolled in a secondary school program of study. Documenting Completion of a Rigorous Secondary School Program of Study *Comments:* Many commenters expressed concern that the requirements for determining and documenting a student's completion of a rigorous secondary school program of study are too onerous. Several commenters asserted that it is unduly burdensome for institutions to determine by means of a postgraduation high school transcript whether a student has met the definition of a rigorous secondary school program of study under § 691.16(d). Commenters noted that this requirement will be a substantial new undertaking for institutions and they will have to come up with the resources or processes to comply. Several commenters noted that many community colleges do not collect high school transcripts as part of their admissions process; instead, they use testing to determine readiness. Other commenters noted that the transcripts they are evaluating for ACGs reflect only six or seven semesters of high school coursework. These commenters were concerned that there would be a problem with the timing of admissions decisions and initial financial aid package offers, which occur in the winter or spring prior to enrollment in the fall, because there may be uncertainty about whether a student would complete a rigorous secondary school program of study. The commenters proposed several options to ameliorate the burden of documenting completion of a rigorous secondary school program of study. The commenters suggested adding an option for defining a rigorous secondary school program of study that could be applied at the midpoint of a student's final year in high school, noting that this option would provide greater assurance that the initial financial aid award package for the student would materialize for the student when the final high school transcripts are reviewed and also would provide some measure of administrative ease for colleges when evaluating the final secondary school transcripts. One commenter noted that, in the few cases when the student substantially deviates from the level of academic achievement on the partial transcript, institutions could withdraw the admissions offer. In addition, one commenter suggested adding an option to define a rigorous secondary school program of study as a total of 16 subject years of study within the five defined subject areas. The commenter noted that this definition would reflect a higher subject year count than the current minimum course requirements and a broader curriculum than the AP and IB option demonstrates by requiring certain scores in only two courses. The commenter believed that this alternative would be acceptable if coupled with confirmation of graduation and successful completion of senior year courses. Similarly, one commenter asked that an institution whose academic policy required the same coursework from all admitted students that the Secretary requires for rigorous secondary school programs of study under § 691.16(d) be permitted to assume that an otherwise-eligible student had completed a rigorous secondary school program of study, without requiring the institution to retrieve and review every transcript. One commenter requested clarification as to whether there is a minimum score required for rigorous programs like AP and, if so, whether it is the minimum required by, for example, the institution or the State. Finally, one commenter asked for clarification as to whether it is necessary to have documentation such as for AP scores in the Financial Aid office or if maintaining documentation at the Admissions or Registrar's Office would be acceptable. *Discussion:* The Secretary believes the current regulations appropriately balance statutory requirements with institutional burdens raised by commenters. While the Secretary agrees that there is a concern with respect to the timing of the availability of complete high school transcripts and admissions and financial aid package offers for first-year ACGs, section 401A(c)(3)(A)(i) and (c)(3)(B)(i) of the HEA requires a student to complete, and graduate from, a rigorous secondary school program of study in order to be eligible for an ACG. The Secretary believes that a rigorous secondary school program of study continues through a student's fourth year of high school. Institutions do not always withdraw admissions offers when a student's final high school transcript differs significantly from the partial transcript. In the case of an ACG, the purpose of the transcript is to document the completion of a rigorous secondary school program of study. The Secretary does not regulate the admissions standards of postsecondary institutions. When a student substantially deviates from the level of academic achievement on the partial transcript, the Secretary cannot regulate to require institutions to withdraw their admissions offers. The Secretary's concern, for purposes of awarding an ACG, would be that the transcript documented the student's completion of a rigorous secondary school program of study. While institutions are responsible for maintaining documentation at the institution, no specific location is required. If an institution requires the same coursework that the Secretary requires for a rigorous secondary school program of study from an admitted student, and the financial aid office is certain that the transcript or equivalent document confirming completion of a rigorous secondary school program of study is kept at the admissions office or some other part of the institution, it could assume a student met the rigorous secondary school program of study criterion. Finally, it should be noted that the minimum scores for AP exams were published in § 691.16(d)(5) of the interim final regulations. *Changes:* None. Declaring an Eligible Major *Comments:* One commenter believed that the Federal Government should not insert itself into the process of determining when a student declares a major as this action usurps an institution's prerogative to establish its own academic requirements. Another commenter requested clarification on how to document intent to declare an eligible major and how to determine when a student is no longer displaying an intent to declare an eligible major. One commenter suggested that, when an institution's academic requirements do not allow a student to declare an eligible major in time to qualify for a National SMART Grant, the student should be allowed to meet the declaration of eligible major requirement by enrolling in the courses deemed by the institution to be consistent with fulfilling the requirements of an intended eligible major and declaring an intention to complete a major in an eligible field of study. *Discussion:* The Secretary does not agree that the regulations intrude on an institution's prerogative to establish its own academic requirements. In addition, the Secretary believes that documentation of intent to declare an eligible major should be determined by institutional policy. The regulations permit a student to fulfill the requirement that he or she declare an eligible major by enrolling in the courses deemed by the institution to be consistent with fulfilling the requirements of an intended eligible major and declaring an intention to complete a major in an eligible field of study if that is the institutional policy. *Changes:* None. Section 691.16 Recognition of a Rigorous Secondary School Program of Study *Comments:* A few commenters supported the multiple options for demonstrating completion of a rigorous secondary school program of study, while other commenters believed that additional secondary school programs of study should be recognized as rigorous. One commenter believed that the recognized State secondary school programs of study should be the single standard for a rigorous secondary school program of study, as it would greatly reduce the administrative burden for institutions. A few commenters believed that the minimum course requirements in § 691.16(d)(2) are too strict and would unfairly eliminate from eligibility students who should be eligible for an ACG. Two commenters believed that some students who meet their admissions requirements but who do not or cannot take the required courses in high school should not be eliminated from eligibility. For example, one commenter noted that advanced students who reduce their high school classes, such as English, during their last year of high school to take college classes may not qualify, even though their secondary school programs of study were quite rigorous. Another commenter gave the example of a student who otherwise qualified as a student who had completed a rigorous secondary school program of study, but who attended a high school that did not offer physics. One commenter believed that the Secretary should ensure that all approved State programs use wording consistent with the minimum course requirements under § 691.16(d)(2) to the extent possible so that institutions will know that differences are not just semantic. For example, the commenter questioned whether a particular State standard requiring three years of math (at the algebra I level or higher) is intended to be different from the Federal standard requiring three years of math (including algebra I and a higher level course such as algebra II, geometry, or data analysis and statistics). A few commenters were concerned with the lack of uniformity in secondary school course descriptions, noting that States often combine courses into one general course; such as combining algebra I and geometry into a math I course offered over two academic years. The commenters believed that it is unreasonable to expect an institution to be familiar with the graduation requirements for all school districts in order to determine whether a student's courses meet the definition of a rigorous secondary school program of study. One commenter believed that the rigorous secondary school programs of study established by States and recognized by the Secretary should not be revised annually as significant changes would create confusion for students and undue burden for institutions. *Discussion:* Section 401A(f) of the HEA requires the Secretary to recognize at least one rigorous secondary school program of study in each State. As there is no statutory requirement for States to submit programs for recognition, the Secretary believed it was necessary to develop additional options for completion of a rigorous secondary school program of study that would ensure that students in each State have the opportunity to qualify for an ACG. The Secretary believes that the breadth of the options provides the vast majority of students for whom this grant program was intended with sufficient means to demonstrate eligibility for an ACG. To the extent that these options do not provide sufficient means to demonstrate eligibility, the Secretary encourages individuals, high schools, and postsecondary institutions to work together with States so that States may submit additional or revised programs for recognition. As for an advanced student who reduces his or her high school classes to take college classes, the Secretary reminds commenters that completion of college courses that meet the minimum course requirements for a rigorous secondary school program of study count toward completion of a rigorous secondary school program of study if they are accepted toward the student's high school diploma. The Secretary understands the commenters' concerns with inconsistent wording in State programs and a lack of clarity of course descriptions. However, the Secretary does not believe that it is appropriate to establish a national standard for the wording of State submissions of rigorous secondary school programs of study or course descriptions and recommends that concerns with consistency of wording be taken up with States and secondary schools. The Secretary believes it is imperative that there be an annual opportunity for States to submit changes to their rigorous programs of study because, to the extent that these changes result in a more rigorous program of study, students from that State graduating in that year would be held to the new standard when applying for an ACG. If, however, these changes result in a less rigorous program of study, the Secretary may deny recognition if the Secretary determines the level of rigor has fallen below the HEA's intended level. *Changes:* None. *Comments:* A few commenters questioned whether coursework taken prior to high school counts toward the minimum course requirements under § 691.16(d)(2). Specifically, one commenter asked whether a student who is otherwise eligible under § 691.16(d)(2), and who took a foreign language in 8th grade but did not take one later is eligible for an ACG. Another commenter noted that many students take algebra I prior to high school; therefore, it does not appear on the student's high school transcript. The commenter asked the Secretary to clarify under what circumstances such a student can be considered to have completed algebra I for the minimum mathematics course requirements under § 691.16(d)(2). In particular, the commenter wanted to know if an institution may assume that a student has completed algebra I if it is not included on the transcript, but geometry, algebra II, or calculus are included. *Discussion:* If a student completed the secondary school curriculum in a school system in which the high school does not include other secondary school grades, *e.g.* , the high school does not include grade eight or nine, institutions should use their normal processes for determining whether coursework completed in earlier grades is included. However, an institution may make certain assumptions, as appropriate, based on its knowledge of a school system's curriculum. For example, if a high school transcript covering only grades 10-12 shows completion of three years of English, the institution may assume that the student completed a year of English in the ninth grade. *Changes:* None. *Comments:* One commenter recommended that the minimum science course requirements in § 691.16(d)(2) be changed to recognize other challenging science coursework. The commenter believed that a student who completed physical science in ninth grade, biology in tenth grade, environmental science in eleventh grade and anatomy and physiology in twelfth grade should be considered to have met the minimum science course requirement. *Discussion:* The Secretary believes that the minimum coursework requirements in the regulation are appropriate. These standards are patterned after the recommendations for the essentials of a strong curriculum in the National Commission on Excellence in Education's report, A Nation at Risk: The Imperative for Educational Reform available on the Department's Web site at *http://www.ed.gov/pubs/NatAtRisk/index.html.* As previously noted, to the extent that these options do not provide sufficient means to demonstrate eligibility, the Secretary encourages individuals, high schools, and postsecondary institutions to work together with States so that States may submit additional or revised programs for recognition. *Changes:* None. *Comments:* One commenter recommended that an exception be made to the foreign language course requirement under § 691.16(d)(2) for students with physical limitations such as hearing loss. The commenter noted that, because of language deficits that accompany hearing loss, most deaf students do not take languages other than English as a part of their secondary programs, and few schools for the deaf require or encourage foreign language as a part of their curriculum. The commenter added that even if American Sign Language
(ASL)meets the definition of a foreign language, most deaf students are already ASL users and do not need to study it in secondary school. *Discussion:* While the Secretary understands the concerns raised by the commenters, she believes that a change to this requirement is unnecessary. The Secretary considers one year of ASL to meet the requirement of one year of a language other than English necessary to meet the minimum course requirements under § 691.16(d)(2). Also, as stated previously, the Secretary believed it was necessary to develop additional options for completion of a rigorous secondary school program of study that would ensure that students in States that did not submit programs for recognition have the opportunity to qualify for an ACG. The Secretary believes that the breadth of the options, including participation in honors programs established by States or completion of AB or IB courses and the earning of a minimum score on the exams for those courses, provides the vast majority of students for whom this grant program was intended with sufficient means to demonstrate eligibility for the ACG. *Changes:* None. *Comments:* One commenter questioned whether students attending an institution with a “bridging year” program and completing their senior year of high school at the postsecondary institution would be eligible for a second year ACG if they do not receive a high school diploma, but instead earn a General Education Development
(GED)certificate. One commenter believed that the Department was interpreting the regulations to mean that a student who obtains a GED is automatically ineligible for an ACG or National SMART Grant simply because he or she has obtained a GED. The commenter noted that some home-schooled students, who otherwise qualify as having completed a rigorous secondary school program of study, are advised to take the GED to meet college admission requirements. The commenter asked the Department to make clear that such students who obtain the GED are not automatically ineligible. *Discussion:* A student who obtained a GED is not automatically ineligible for an ACG or National SMART Grant. However, a student who obtains a GED in lieu of a high school diploma cannot use the GED, alone, to demonstrate completion of a rigorous secondary school program of study. The Department believes that completion of a GED program alone does not demonstrate the academic achievement of a rigorous secondary school program of study. Such a student can nonetheless qualify for an ACG with a GED by completing one of the rigorous secondary school programs of study recognized under § 691.16. *Changes:* None. *Comments:* Two commenters asked the Department to clarify which level of IB examination, standard or higher, a student must take to qualify for an ACG. One commenter believed that the regulations confuse the IB Diploma program with a stand-alone IB course. The commenter believed that the regulations should be changed to make clear that a student is considered to have completed a rigorous secondary school program of study if he or she completes and achieves the required minimum score for the exam on at least two IB courses, whether or not they are part of an IB Diploma Program. *Discussion:* A score of “4” or higher on either the standard level or higher level IB examination for at least two IB courses meets the exam portion of the IB standard for completion of a rigorous secondary school program of study. The Secretary agrees that a student who completes and achieves the required minimum score for the exam on at least two IB courses, whether or not they are part of an IB Diploma Program, should be considered to have completed a rigorous secondary school program of study. *Changes:* Section 691.16(d)(4) has been changed to clarify that a student who completes and achieves the required minimum score for the exam on at least two IB courses, whether or not they are part of an IB Diploma Program, is considered to have completed a rigorous secondary school program of study. *Comments:* One commenter believed that high scores on standardized achievement tests, such as the SAT and ACT, should be recognized as a rigorous secondary school program of study. The commenters believed that this recognition would be consistent with the inclusion of completion of IB or AP courses with high test scores as rigorous programs because they establish that a student has attained a level of ability in completing his or her secondary school program that is commensurate with completing a rigorous secondary school program of study. The commenter believed that this proposal would reduce burden on institutions, as these test scores are readily accessible. The commenter believed that States and test owners could work together to determine the qualifying test score. *Discussion:* The Secretary does not agree that high scores on standardized achievement tests should be recognized as a rigorous secondary school program of study. Unlike the IB and AP tests, there are no specific courses or curriculum that correspond to the standard achievement tests. The Secretary believes that both components are necessary to demonstrate that a student has successfully completed a rigorous secondary school program of study. *Changes:* None. Section 691.17 Determination of Eligible Majors *Comments:* Several commenters whose institutions do not offer programs in the eligible majors were concerned that their institutions were excluded from the National SMART Grant Program. In one case, the institution offered majors with concentrations in the eligible fields. The commenter requested clarification on whether students in these types of programs would be eligible. In another case, the institution offered intensive instruction in math and science as part of a liberal arts degree. Two commenters from this institution requested that this institution be included among eligible institutions and one of these commenters also requested an alternative means for students whose institution does not offer eligible majors to qualify. *Discussion:* Section 401A(c)(3)(C) of the HEA requires a student to pursue a major in the physical, life, or computer sciences, mathematics, technology, or engineering (as determined by the Secretary pursuant to regulations); or a critical foreign language in order to be eligible for a National SMART Grant. No alternative categories of majors are indicated in the HEA, and the Secretary does not have the authority to provide alternative categories through regulations in those cases where ineligible majors include concentrations in eligible fields or where liberal arts degrees do not provide eligible majors but do include some intensive instruction in eligible fields. *Changes:* None. *Comments:* Several commenters addressed the determination of eligible majors. One commenter expressed concern that a number of scientific fields were omitted and that the eligible languages were too narrowly identified for purposes of available undergraduate majors. Another commenter was concerned that Evolutionary Biology was omitted from the eligible majors list. One commenter was concerned that teaching degrees in the science and math fields were not included in the list of eligible majors. Another commenter suggested taking a more thorough look at the majors, especially in areas of national need, such as nursing and public health. Yet another commenter was concerned about the consultation process and thought that the Department should consult directly with organizations such as the National Academy of Sciences and other professional scientific organization to receive input on the determination of eligible majors. One commenter recommended that, if the Department was unable to supply the list of eligible majors by February 1 preceding the academic year for which determinations of eligibility must be made, the Department should permit an institution to use the current list for first-time determinations of National SMART Grant eligibility. One commenter requested clarification on whether a student would still be eligible for a National SMART Grant if that student's major is removed from the list of approved majors at any time subsequent to the student's first National SMART Grant payment, when the student's payment was based on the student's intent to declare an eligible major as described in § 691.15(c)(2)(i)(B). Finally, one commenter requested clarification on an institution's responsibility to ensure that qualifying majors are being actively pursued. *Discussion:* Section 401A(c)(3)(C) of the HEA specifies that a student must pursue a major in the physical, life, or computer sciences, mathematics, technology, or engineering (as determined by the Secretary pursuant to regulations); or a critical foreign language in order to be eligible for a National SMART Grant. Evolutionary Biology was omitted from the original list of eligible majors in error; a revised list including this major and Exercise Physiology, which was also omitted in error, has been posted. The list of eligible majors will be reviewed annually; however, section 401A(c)(3)(C)(i)(II) of the HEA only requires consultation on the list of critical foreign languages with the Director of National Intelligence. The current list of critical foreign languages was developed in consultation with the Director of National Intelligence as required. The Secretary will continue to identify a list of eligible majors, including critical foreign languages, annually for an award year to ensure that the most current information is used and will publish the list in time for institutions to plan awards accordingly. Because a student's intent to declare an eligible major as described in § 691.15(c)(2)(i)(B) serves as a proxy for actually declaring an eligible major until the declaration is permitted by an institution, under § 691.17(c) a student would still be eligible if a student's major is removed from the list of approved majors at any time subsequent to the student's first National SMART Grant payment, when the student's payment was based on the student's intent to declare an eligible major as described in § 691.15(c)(2)(i)(B) as well as when the student's payment was based on a declared eligible major under § 691.15(c)(2)(i)(A). Finally, it is the institution's responsibility to ensure that qualifying majors are being actively pursued. The institution is responsible for ensuring this active pursuit of eligible majors and may use any institutional process that it chooses to document this intent. *Changes:* None. Section 691.61 Submission Process and Deadline for a Student Aid Report or Institutional Student Information Record *Comments:* One commenter noted that § 691.61(b) cross-referenced §§ 668.60 and 668.164 and that conforming changes were made to § 668.164, but that § 668.60 was not amended to include the ACG and National SMART Grant programs. Therefore, the commenter stated that it is unclear which provisions of § 668.60 apply to the ACG and National SMART Grant programs. *Discussion:* The Secretary agrees that the requirements in § 668.60 that apply to the ACG and National SMART Grant programs need clarification. *Changes:* Section 668.60 is revised to clarify how it applies to the ACG and National SMART Grant programs. *Comments:* One commenter stated that § 691.61(a) appears to place the responsibility on institutions to review the record of all FAFSA filers to identify eligible students rather than just those FAFSA filers identified by the Secretary as potentially eligible students. The commenter suggested that the institution should be allowed to rely on information on the Student Aid Report
(SAR)or ISIR as to whether the student is potentially eligible to receive an ACG or National SMART Grant. That is, if the student's SAR or ISIR does not indicate that the student is potentially eligible to receive an ACG or National SMART Grant, the institution would not be required to check its own records or take any other action to determine whether the student is potentially eligible. Rather, the institution could assume that the student is not eligible for the ACG or National SMART Grant and take no further action. *Discussion:* To implement the ACG Program, the Secretary has instituted procedures for students to self-identify that they have completed a rigorous secondary school program of study and institutions, at their option, may generally rely on this self-identification process. Most potentially eligible students will have had an opportunity to self-identify through the FAFSA (application) process on this matter and will have a positive indication on their SAR or ISIR with regard to completion of a rigorous secondary school program of study. Under § 691.61, an institution is allowed to rely on the information on a student's SAR or ISIR as to whether the student is potentially eligible for an ACG, unless the institution has information from another source indicating that the student is potentially eligible. For example, if a student whose SAR or ISIR does not indicate potential eligibility for the ACG (because the student has not yet self-certified as to his or her completion of a rigorous secondary school program of study) informs the institution that he or she has completed such a secondary school program of study, and is thus potentially eligible for the ACG, then the institution must follow up on that information and determine whether the student is eligible for the ACG. Outside of the eligibility requirements common to both the ACG and the National SMART Grant programs found in § 691.15(a), *i.e.* , the general eligibility requirements from 34 CFR part 668, subpart C; U.S. citizenship; receiving a Federal Pell Grant; and being enrolled full-time, the primary eligibility requirements for receipt of a National SMART Grant relate to pursuit of an eligible major and having the requisite GPA. Information about these eligibility factors will not be found on the SAR or ISIR. Thus, for the National SMART Grant Program, there is not the same issue of determining eligibility for students who do not have eligibility information on their SAR or ISIR as there is for the ACG Program. However, it should be noted that an institution does have to determine whether its students meet the eligibility requirements for the National SMART Grant Program, including which of its students are in eligible majors, and award those students, if otherwise eligible, a National SMART Grant. *Changes:* None. Section 691.62 Calculation of a Grant Ratable Reduction *Comments:* Two commenters expressed concern over the potential for ratable reductions to the awards. One of the commenters inquired as to when award maximums would be considered final for the year. The other commenter offered multiple suggestions for avoiding ratable reductions. *Discussion:* Section 401A(d)(1)(B)(ii) of the HEA requires the Secretary to ratably reduce the maximum grant amounts for both programs when the funds available for a given award year are less than the amount needed to fund full awards for all eligible students. The Secretary establishes the ACG and National SMART Grant Scheduled Awards based on the availability of funds appropriated and the anticipated number of eligible students. Scheduled Awards for the ACG and National SMART Grant programs will be announced annually in conjunction with the announcement of Scheduled Award amounts for the Federal Pell Grant Program. Historically, these announcements have occurred between December and February prior to the beginning of the award year. The Secretary uses multiple data sources to best predict the number of eligible recipients for the ACG and National SMART Grant programs and will monitor disbursements from both programs based on current year reports received from postsecondary institutions. Every effort will be made to avoid ratable reductions. However, if ratable reductions are necessary, the Secretary will notify the community promptly of the new Scheduled Awards and the procedures for ratably reducing the ACG and National SMART Grant awards. *Changes:* None. Packaging *Comments:* Several commenters objected to the requirement that the amount of an ACG or National SMART Grant for an academic year, in combination with the student's EFC and any other student financial assistance available to the student, cannot exceed the student's cost of attendance for that academic year. One commenter suggested that grants from both programs be awarded, similar to Federal Pell Grants, without regard to either the student's financial need or the amount of other student financial assistance received. Another commenter proposed that the grants be allowed to replace EFC, but not to exceed the student's cost of attendance when combined with other student financial assistance received. An additional set of commenters requested that a $300 overaward threshold be added to the ACG and National SMART Grant programs, similar to the threshold allowed under § 673.5(d) for the campus-based programs. One of these commenters also believed that there is confusion over which definition of estimated financial assistance applies to the ACG and National SMART Grant programs. Yet another commenter requested that Chapter 31 veterans' education benefits be excluded from all definitions of estimated financial assistance. *Discussion:* The Secretary believes that the packaging requirement is appropriate. As noted in the preamble to the interim final regulations, ACGs and National SMART Grants are need-based grants in that the HEA requires recipients to be eligible for Federal Pell Grants. Section 471 of the HEA defines the amount of need of any student as cost of attendance minus EFC minus estimated financial assistance. Need-based grant assistance cannot replace a family's expected contribution toward a student's postsecondary expenses. The overaward threshold allowed under the campus-based programs exists to assist institutions with the variations of earnings under the Federal Work-Study program and the estimates institutions must make in projecting utilization of Federal Perkins Loan and Federal Supplemental Educational Opportunity Grant funds as well as the bearing of collections on the availability of funds under the Federal Perkins Loan Program. Because these issues do not exist for the ACG and National SMART Grant programs, an overaward threshold is not necessary. Regarding the confusion over which definition of *estimated financial assistance* applies to the ACG and National SMART Grant programs, the Secretary agrees that the differences among the three definitions can cause confusion. Because the definitions in §§ 682.200(b) and 685.102(b) have exclusions based on statutory language that does not apply to the ACG and National SMART Grant programs, we intend to modify the language in § 691.62(c) to reference the definition of *estimated financial assistance* in § 673.5(c). Chapter 31 veterans' education benefits may not be excluded from the definition of *estimated financial assistance* because there is no statutory basis for exclusion of Chapter 31 benefits. Section 428(a)(2)(C)(ii) authorizes only Chapter 30 veterans' education benefits and AmeriCorps benefits and awards to be excluded when determining subsidized loan eligibility. Further, when determining a student's eligibility for an ACG or National SMART Grant, an institution may exclude from estimated financial assistance any portion of a subsidized Federal Stafford Loan that is equal to or less than the amount of the student's Chapter 30 veterans' education benefits and AmeriCorps education awards or post-service benefits. *Changes:* Section 691.62(c) has been revised to provide that other student financial assistance is *estimated financial assistance* as defined in § 673.5(c). Section 691.63 Calculation of a Grant for a Payment Period *Comments:* One commenter suggested that the Department review the Federal Pell Grant formulas (and thus, these formulas in § 691.63) to simplify the payment period calculations. The commenter also asked the Secretary to consider revising the academic year definition for clock hour programs from 30 weeks to 26 weeks due to the change made by the HERA. *Discussion:* Given the time constraints associated with the development of regulations resulting from the enactment of the HERA (especially with respect to the implementation of the ACG and the National SMART Grant programs), the Secretary does not believe that it would be prudent to attempt to change formulas used in the calculation of grants for the Federal Pell Grant, the ACG, and the National SMART Grant programs at this time. While such a review and possible revision of those formulas may prove to be beneficial at a later time, the Secretary believes that, since the formulas have been used for a long time and are familiar to the financial aid community, it would be unwise to revise them now when the aid community already has to deal with the changes resulting from the HERA. To reflect the change made by the HERA, a change to the definition of an *academic year* for programs offered in clock hours was made in previously published regulations. Section 668.3 now contains a definition of an academic year that provides that 26 weeks of instructional time is the minimum number of weeks of instructional time in an academic year for a clock hour program, while retaining 30 weeks of instructional time as the minimum number of weeks of instructional time for a credit hour program. That definition also retains the provision that, under certain conditions, the Secretary may approve an academic year with a minimum of 26 weeks of instructional time for a credit-hour program. *Changes:* None. *Comments:* One commenter believed that the determination of enrollment status is an eligibility criterion and not a factor in the calculation of the grant payment and that for payments for payment periods calculated under § 691.63(d), commonly referred to as Formula 3, it would seem much simpler just to direct the institution to use the same enrollment status determined for a Federal Pell Grant to determine eligibility for an ACG or National SMART Grant award. The commenter suggested that a cross-reference to the Federal Pell Grant Program regulations could be used to determine a student's enrollment status for an ACG or National SMART Grant. *Discussion:* The Secretary believes that the public will benefit from a complete set of regulations to implement the ACG and National SMART Grant programs, rather than providing cross-references to the Federal Pell Grant Program regulations throughout the ACG and National SMART Grant regulations. *Changes:* None. Section 691.75 Determination of Eligibility for Payment *Comments:* With respect to the institution's determination about whether a student is pursuing an eligible major at the beginning of a payment period, one commenter suggested changing “is no longer pursuing a required major” in § 691.75(b)(3) to “is not pursuing a required major” to cover not only those situations in which the student had at one time (before the beginning of the payment period) been pursuing an eligible major, but stopped doing so, but also situations in which the student had never pursued, and is still not pursuing, an eligible major. *Discussion:* The Secretary agrees with the commenter's suggestion. With this change, all situations in which the institution determines that the student is not pursuing a required major at the beginning of the payment period will be covered. Then, as the regulations go on to address, if the institution reverses a determination before the end of the payment period, the institution may pay the student a National SMART Grant for the entire payment period. *Changes:* Section 691.75(b)(3) and
(c)has been revised to change “is no longer pursuing a required major” to “is not pursuing a required major.” *Comments:* One commenter asked how the financial aid office should deal with eligibility for a student for a National SMART Grant if the student was one hour short of being a junior at the beginning of one term, but reached junior status by the next term. The commenter asked if the aid office should start paying such a National SMART Grant in the middle of the academic year. The commenter also asked whether the aid office should pay a student for the spring and summer terms only, if the student does not have at least a 3.0 GPA before fall starts but does before spring. The commenter also asked about the National SMART Grant eligibility of a student who changed to an ineligible major. The commenter asked whether the aid office would stop paying the student at the point at which the student changed to an ineligible major or would retroactively take the National SMART Grant away from the student entirely. Another commenter asked what should be done if a student has a 3.0 GPA when the fall term starts but drops below that average after (the previous term's) grades are posted. The commenter also wanted to know what would happen if the student's GPA was back up to at least 3.0 by the spring term. Another commenter asked how grades of incomplete are to be considered with respect to the GPA requirement. Another commenter asked for clarification of how an institution should determine GPA and academic year level when the institution first becomes aware of a student's prior postsecondary attendance after the student's transfer credits for fall attendance (for which no aid was received) are received late in the spring semester. Finally, several commenters raised an issue related to eligible students who, in fact, did meet during the payment period in question with the eligibility requirements for an ACG or a National SMART Grant associated with the GPA or with the declaration of an eligible major, but for whom the institution erred when it determined that the students failed to meet those requirements and did not discover its mistake until after the end of that payment period. The commenters suggested that these students should receive a grant for the completed payment period. *Discussion:* Section 691.75 addresses the factors that an institution must consider to determine that a student is eligible each time it makes a payment to a student of an ACG and a National SMART Grant. Section 691.75(a)(1) provides that the institution has to determine that the student meets the eligibility criteria listed in § 691.15. For a National SMART Grant, one of those eligibility criteria is that the student be in the third or fourth academic year of an eligible program. (Note that the third academic year of the student's program is not necessarily synonymous with the junior year of the student's program.) Nevertheless, if the student is one hour short of starting his or her third academic year at the beginning of a term ( *e.g.* , the fall term), but begins the third academic year by the next term (the spring term) (presumably at the beginning of that term), then the student, if otherwise eligible, qualifies for a National SMART Grant for that spring term. The student would not qualify for a National SMART Grant payment for the fall term in this example but may qualify for any remaining second-academic-year ACG eligibility for this fall term. The institution would start paying the National SMART Grant in the middle of the institution's year, *i.e.* , at the beginning of the spring term. This issue is further clarified in § 691.63(h), which provides that, in the case of a payment period with two academic years, an institution must calculate the payment for the payment period using the ACG or National SMART Grant Scheduled Award of the academic year being completed. With regard to a student who does not have at least a 3.0 GPA (for the first academic year for a second-year ACG, and for the most recently completed payment period in the student's eligible program for a National SMART Grant) before fall starts, but does before spring, § 691.75(b)(2) and
(3)indicates that the student, if otherwise eligible, can receive an ACG or National SMART Grant for the entire fall term if the institution determines that the student has the required minimum 3.0 GPA before the end of the fall term. On the other hand, if the institution does not make the determination that the student has at least a 3.0 GPA until after the end of the fall term, then, under § 691.75(c), the student cannot receive an ACG or National SMART Grant for the fall term. With respect to an eligible student who is receiving a National SMART Grant, but then changes to an ineligible major (and does not change back to an eligible major), the institution may not make any additional National SMART Grant payments (for the payment period in which the change of majors took place or for future payment periods) to the student once the student has changed to the ineligible major, regardless of whether that change is made at the end of a payment period or during the payment period. However, any payments that were made to an eligible student before he or she changed to an ineligible major are legitimate payments and do not have to be repaid. When a student has a 3.0 GPA when the fall term begins, but that GPA at that time does not include grades from the previous term, the institution may not have all of the information it needs to determine whether the student is eligible for an ACG or National SMART Grant. For the ACG for the second academic year of the student's eligible program, the HEA requires that the student have at least a 3.0 GPA for the first academic year of his or her eligible program. For the National SMART Grant, the requirement is that the student have at least a 3.0 GPA for his or her courses in the eligible program up through the most recently completed payment period (term in this example). For either program, if there are courses that have been taken in the previous term that are part of the coursework for which the student must have at least a 3.0 GPA and grades for those courses are not yet available, § 691.75(d) provides that the institution may make one interim disbursement for a payment period. However, when those grades become available, they must be factored into the GPA. At that time, if the student does not have the required GPA, the payment made by the institution before the student's GPA could be calculated becomes an overpayment that must be repaid by the institution. These provisions would apply, as well, to any applicable coursework for which the student initially received a grade of incomplete. If information about a student's transfer of credit from another institution comes to the institution's attention late in, or after, a term, the institution may have already made a determination of eligibility that did not consider that information. If that information affects a student's GPA or academic year level and thus could affect the student's eligibility for an ACG or National SMART Grant, the institution must factor it into its determination of the student's eligibility and take appropriate action. Regarding erroneous determinations by an institution that, for a particular payment period, an otherwise eligible student did not have the required GPA or had not declared an eligible major, if such a student in fact had satisfied those requirements during that payment period, that student would be eligible for a payment of the applicable grant regardless of whether the institution discovered its mistake before or after the completion of that payment period. Section 691.78 Method of Disbursement—By Check or Credit to a Student's Account *Comments:* Several commenters noted that § 691.78(b), which addresses the return of funds paid to a student who leaves the institution before the first day of classes, seems duplicative of § 668.21. In addition, the commenters also found references to award year in § 691.78(c) confusing, as ACG and National SMART Grant awards are determined on an academic year basis. *Discussion:* The Secretary agrees that § 691.78(b) is redundant. The use of the term “award year” in § 691.78(c) is appropriate even though a particular student's eligibility is determined based on the student's completion of an academic year not an award year. Funds for the ACG and National SMART Grant are appropriated for an award year, which is separate and distinct from the eligibility determination. The language in § 691.78(c) addresses what actions must occur when delivering funds to a student during an award year. *Changes:* The Secretary has removed § 691.78(b) and made a conforming change by removing the provision from § 690.78 of the Federal Pell Grant Program regulations. Section 691.80 Redeterminations of Eligibility for a Grant Award *Comments:* One commenter asked the Secretary to clarify how ACG and National SMART Grant funds should be handled if a student receives the funds prior to dropping to a less than full-time enrollment status. Specifically, the commenter wanted to know whether the institution must remove the funds from the student's account, or prorate the funds as an institution would be required to do with Federal Pell Grant funds. *Discussion:* According to § 691.80(b), when there is a change in the student's enrollment status, the institution's policy for recalculating awards takes effect. For example, an institution's policy may establish a recalculation date at the end of its drop-add period (also known as a census date) by which the student's enrollment status for the term will be finalized. The enrollment status is, thus, defined as the number of credit hours the student is enrolled in at the census date. Under such a policy, if a student was enrolled full-time at the beginning of the term but, by the census date, the student had dropped to half-time enrollment status, the institution must use the half-time enrollment status to determine eligibility for the ACG or National SMART Grant. Because the HEA requires full-time enrollment, the student in this example would not be eligible for the ACG or National SMART Grant for that term, and any ACG or National SMART Grant funds disbursed for that term would have to be repaid by the student. On the other hand, if the student dropped below full-time enrollment after the recalculation date, his or her ACG or National SMART Grant award would be based upon full-time enrollment. Situations in which information is received after a determination of eligibility has been made are governed by § 668.16(f), which states that an institution must identify and resolve discrepancies that arise from the institution's receipt of any information that has bearing on a student's eligibility for funds under the title IV, HEA programs. If that information affects the amounts and or types of title IV aid the student is receiving or may be eligible to receive, the institution must take appropriate actions. *Changes:* None. Section 691.83 Submission of Reports *Comments:* Several commenters asked the Secretary to clarify whether the Secretary intends to include the academic year level of a grant in the payment data submitted by institutions. The commenters noted that, without this information in the National Student Loan Data System (NSLDS), an institution would not know whether a transfer student had already received grant funds at a given award level, as the grant level will not always be apparent from the award (for example, if the grant amount has been reduced to avoid an overaward). *Discussion:* In addition to data similar to what is submitted to the Secretary through the Common Origination and Disbursement
(COD)system, institutions will also provide the academic year for the award for both the ACG and National SMART Grant programs. This information will be available to institution through the NSLDS, which will reflect the academic year completed by the student. Institutions will also provide information on the rigorous secondary school program of study that was used to confirm eligibility for an ACG and the student's academic major (using CIP codes) for a National SMART Grant. Specifications for this COD reporting has been posted to the Department's Information for Financial Aid Professionals Web site. *Changes:* None. Executive Order 12866 Regulatory Impact Analysis Under Executive Order 12866, the Secretary must determine whether this regulatory action is “significant” and therefore subject to the requirements of the Executive Order and subject to review by the OMB. Under section 3(f) of Executive Order 12866, the order defines a “significant regulatory action” as an action that is likely to result in a rule
(1)having an annual effect on the economy of $100 million or more, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities (also referred to as “economically significant”);
(2)creating serious inconsistency or otherwise interfering with an action taken or planned by another agency;
(3)materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
(4)raising 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 that this regulatory action will have an annual effect on the economy of more than $100 million. Therefore, this action is “economically significant” and subject to OMB review under section 3(f)(4) of Executive Order 12866. The Secretary accordingly 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 noted above, these final regulations are needed to implement two programs created in the HERA. The ACG program provides need-based grants to encourage students to complete rigorous secondary school programs of study. The National SMART Grant Program provides need-based grants to encourage students to major in certain scientific and technical fields or foreign languages deemed vital to national security. Section 401A(c)(3)(B)(ii) and (3)(C)(ii) of the HEA specifically requires the Secretary of Education to issue regulations implementing these programs. The Secretary had limited discretion in implementing these grant programs; the number of recipients and aid awarded is largely driven by statutory eligibility requirements such as that students be eligible to receive a Federal Pell Grant, be United States citizens, attend two-or four-year degree-granting institutions on a full-time basis, and, in some cases, maintain a 3.0 GPA. The Secretary has exercised discretion in the areas of program eligibility relating to the definition of a rigorous secondary school program of study in the case of the ACG Program and, for the National SMART Grant Program, the definition of qualifying fields of study. In both these cases, the Secretary has regulated to reflect clear congressional intent. Benefits By facilitating the implementation of these new programs, these final regulations will support the provision of over $4 billion in need-based student aid over the next five years. The ACG Program will benefit society by providing an incentive for students to complete a rigorous secondary school program of study, which research indicates increases the likelihood of successful completion of postsecondary education. The National SMART Grant Program will encourage students to major in technical fields or critical foreign languages. In the case of technical fields, these majors will benefit both national and individual competitiveness, increasing the nation's economic security. With respect to foreign languages, increases in the number of fluent speakers of Arabic, Farsi, Uzbek, and other critical languages would broaden understanding of important cultures and contribute significantly to ongoing efforts to combat international terrorism. In addition, awards under both programs serve to reduce a student's net cost of education. Research indicates that reduction in a student's cost of education correlates with increased student persistence and degree attainment. Data consistently show that postsecondary degree holders have substantially higher lifetime earnings than high school graduates. Costs These programs are supported with $4.5 billion in mandatory appropriations: $790 million for fiscal year 2006, $850 million for fiscal year 2007, $920 million for fiscal year 2008, $960 million for 2009, and $1,010 million for 2010. Funds not expended in one year may be carried forward to support awards in the subsequent year. If the estimated number of recipients exceeds the available funding for a given fiscal year, award levels would be ratably reduced. Table 1.—Estimated Program Participation Estimated number of recipients Estimated avg. award Total amount of aid awarded (expected) (in millions) Award Year 2006-2007: AC Grants—1st year 310,000 $657 $200 AC Grants—2nd year 110,000 1,245 140 National SMART Grants—3rd year 40,000 3,718 150 National SMART Grants—4th year 40,000 3,875 160 Award Year 2007-2008: AC Grants—1st year 330,000 682 230 AC Grants—2nd year 130,000 1,255 160 National SMART Grants— 3rd year 40,000 3,718 150 National SMART Grants—4th year 40,000 3,875 160 The average awards displayed in Table 1 are less than the statutory maximum awards due to the cost of attendance limit on ACG and National SMART Grant awards. In addition, average awards also reflect students who are eligible for an ACG or National SMART Grant for less than the full award year. Figures in Table 1 may not add due to rounding. Because these programs are title IV, HEA programs and eligibility for these programs is linked to Federal Pell Grant eligibility, participating institutions must already meet Federal student aid institutional eligibility requirements. In addition, the delivery system and many program operational requirements for the new programs are patterned after those that institutions are already using for Federal Pell Grants. Accordingly, institutions wishing to participate in the new programs have already absorbed most of the administrative costs related to implementing these final regulations. Marginal costs over this baseline are primarily related to initial, and ongoing eligibility determinations are minimal. Most data needed to make these determinations, such as student citizenship, full-time status, major, and GPA, are generally already available to institutions. In response to the public comment on the interim final regulations, the Department has made changes in these final regulations. The only significant change with economic impact is to permit students to receive an ACG or National SMART Grant for a payment period during which they are not receiving a Federal Pell Grant. This change will enable 32,000 more students to receive grants in 2006. It will also increase the cost of the programs by $27 million in 2006 and by $145 million between 2006-2010. The Secretary requested comments on the regulatory impact analysis in the interim final regulations, but received none. Assumptions, Limitations, and Data Sources Because these final regulations largely restate statutory requirements that would be self-implementing in the absence of regulatory action, cost estimates provided above reflect a prestatutory baseline in which the ACG and National SMART Grant programs do not exist. Given the limited data available, estimates for 2007-2008 do not assume program benefits will induce increased student participation. Costs have been quantified for only two years because the Secretary plans to revise these final regulations through negotiated rule-making, after which more comprehensive cost analyses for subsequent years will be developed. In developing these estimates, data from the 2004 National Postsecondary Student Aid Survey was used to derive the percentage of students meeting initial eligibility requirements for ACG and National SMART Grant awards, including enrollment status, Federal Pell Grant eligibility, citizenship, academic major, and GPA. The 1994 National Education Longitudinal Study, 1996 Beginning Postsecondary Student Survey, and 2000 National Assessment of Educational Progress High School Transcript Study were used to derive the percentage of students otherwise eligible for an ACG who had successfully completed a rigorous secondary school program of study. All these studies were conducted by the National Center for Education Statistics. Regulatory Alternatives Considered In defining eligibility requirements, particularly those related to rigorous secondary school programs of study, these final regulations strike a balance between complete State discretion, which could create confusion and regional inequalities and result in overly generous criteria that dramatically reduce award levels, and an overly prescriptive national determination that would significantly alter the traditional State role in determining secondary school curricula. More specifically, in considering the definition of a rigorous secondary school program of study, the Secretary considered a variety of combinations of coursework and other possible measures. For example, at the time of the release of the President's fiscal year 2007 budget, preliminary estimates assumed a rigorous program of study would consist of four English, three social science, three science, three mathematics, and two foreign language courses. Under this scenario, an estimated 439,000 students would receive $400 million in ACG awards in 2006-2007—compared with $340 million to 420,000 students under these final regulations. In subsequently considering the recognition of rigorous secondary school programs, the Secretary determined it would be more appropriate to include as one option secondary school programs of study with specific coursework requirements, such as, for mathematics, algebra I and a higher level course such as algebra II, geometry, or data analysis and statistics, and for science, at least two years with one year each of biology, chemistry or physics, as well as an advanced or honors program. In addition, the Secretary included students who complete secondary school programs and receive specified scores on the Advanced Placement or International Baccalaureate examinations. The latter provisions offer additional flexibility to individual students attending private or home schools. This approach is consistent with the programs' statutory purpose of creating incentives for certain student behaviors. To achieve this purpose, the grant level must be large enough to provide a meaningful incentive, yet at the same time, program flexibility must be sufficient to allow States and participating institution to recognize broad differences in secondary school and higher education academic structures. 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 As required by OMB Circular A-4 (available at *http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf* ), in Table 2 below, we have prepared an accounting statement showing the classification of the expenditures associated with the provisions of these final regulations. This table provides our best estimate of the increase in Federal student aid payments as a result of these final regulations. All expenditures are classified as transfers to postsecondary students. Table 2.—Accounting Statement: Classification of Estimated Expenditures [in millions] Category Transfers Annualized Monetized Transfers $694. From Whom To Whom? Federal Government To Postsecondary Students. Paperwork Reduction Act of 1995 We received no comments on the Paperwork Reduction Act portion of the interim final rule. OMB has approved the information collection requests identified in the interim final regulations and has assigned the following numbers to the collection of information in these final regulations: 1845-0001, 1845-0039, 1845-0078. Intergovernmental Review This program is subject to Executive Order 12372 and the regulations in 34 CFR part 79. One of the objectives of the Executive order is to foster an intergovernmental partnership and a strengthened federalism. The Executive order relies on processes developed by State and local governments for coordination and review of proposed Federal financial assistance. This document provides early notification of our specific plans and actions for this program. 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.gpoaccess.gov/nara/index.html.* (Catalog of Federal Domestic Assistance Numbers: 84.375 Academic Competitiveness Grants; 84.376 National SMART Grants) List of Subjects in 34 CFR Parts 668, 690, and 691 Colleges and universities, Elementary and secondary education, Grant programs—education, Student aid. Dated: October 25, 2006. Margaret Spellings, Secretary of Education. For the reasons discussed in the preamble, the Secretary amends parts 668, 690, and 691 of title 34 of the Code of Federal Regulations as follows: PART 668—STUDENT ASSISTANCE GENERAL PROVISIONS 1. The authority citation for part 668 continues to read as follows: Authority: 20 U.S.C. 1001, 1002, 1003, 1085, 1088, 1091, 1092, 1094, 1099c, and 1099c-1, unless otherwise noted. § 668.2 [Amended] 2. Section 668.2 is amended in paragraph
(b)in the definition of “Valid institutional student information report” by removing the word “report” and adding in its place the word “record” each place it appears. § 668.51 [Amended] 3. Section 668.51 is amended in paragraph
(a)by adding the words “ACG, National SMART Grant,” immediately after the words “Federal Pell Grant,”. 4. Section 668.52 is amended by: A. Revising the definition of “Institutional student information report”. B. Revising the definition of “Student aid application.” The revisions read as follows: § 668.52 Definitions. *Institutional student information record* as defined in 34 CFR 690.2 and 691.2 for purposes of the Federal Pell Grant, ACG, National SMART Grant, Federal Perkins Loan, FWS, FSEOG, Federal Stafford Loan, and William D. Ford Federal Direct Loan programs. *Student aid application* means an application approved by the Secretary and submitted by a person to have his or her EFC determined under the Federal Pell Grant, ACG, National SMART Grant, Federal Perkins Loan, FWS, FSEOG, Federal Stafford Loan, or William D. Ford Federal Direct Loan programs. § 668.54 [Amended] 5. Section 668.54 is amended in paragraph (a)(2)(i) by adding the words “ACG, National SMART Grant,” immediately after the words “Federal Pell Grant,”. § 668.55 [Amended] 6. Section 668.55 is amended by: A. In the introductory text to paragraph (c), adding the words “ACG, National SMART Grant,” immediately after the words “Federal Pell Grant,”. B. In paragraph (c)(1), adding the words “, ACG, National SMART Grant,” immediately after the words “Federal Pell Grant”. C. In paragraph (c)(2), adding the words “, ACG, National SMART Grant,” immediately after the words “Federal Pell Grant”; and by removing the punctuation “,” after the word “campus-based”. § 668.58 [Amended] 7. Section 668.58 is amended by: A. In paragraph (a)(1)(i), adding the words “, ACG, National SMART Grant,” immediately after the words “Federal Pell Grant”. B. In paragraph (a)(2)(i), adding the words “ACG, National SMART Grant, or” immediately after the words “Federal Pell Grant,”. C. In paragraph (a)(2)(ii)(A), adding the words “ACG, National SMART Grant,” immediately after the words “Federal Pell Grant,”. § 668.59 [Amended] 8. Section 668.59 is amended by: A. In the introductory text to paragraph (a), removing the words “Federal Pell Grant Program” and adding, in their place, the words “Federal Pell Grant, ACG, and National SMART Grant programs”. B. In paragraph (a)(1)(i), adding the words “, ACG, or National SMART Grant” immediately after the words “Federal Pell Grant”. C. In paragraph (a)(2) introductory text, adding the words “, ACG, or National SMART Grant” immediately after the words “Federal Pell Grant”. D. In the introductory text to paragraph (b), removing the words “Federal Pell Grant Program” and adding, in their place, the words “Federal Pell Grant, ACG, and National SMART Grant programs”. E. In paragraph (b)(1), adding the words “, ACG, or National SMART Grant” immediately after the words “Federal Pell Grant”. F. In paragraph (b)(2)(i)(B), adding the words “, ACG, or National SMART Grant” immediately after the words “Federal Pell Grant”. G. In paragraph (b)(2)(ii)(A), adding the words “, ACG, or National SMART Grant” immediately after the words “Federal Pell Grant”. § 668.60 [Amended] 9. Section 668.60 is amended by: A. In the introductory text to paragraph (c), removing the words “Federal Pell Grant Program” and adding, in their place, the words “Federal Pell Grant, ACG, and National SMART Grant programs”. B. In paragraph (c)(1), adding the words “and 691.61” immediately after the regulatory citation “690.61”. C. In paragraph (c)(2)(i), adding the words “, ACG, or National SMART Grant” immediately after the words “Federal Pell Grant”. D. In paragraph (c)(2)(ii), adding the words “, ACG, or National SMART Grant” immediately after the words “Federal Pell Grant”. E. In paragraph
(d)by adding the words “ACG, or National SMART Grant program assistance,” immediately after the words “Federal Pell Grant,”. § 668.61 [Amended] 10. Section 668.61 is amended in paragraph (a)(2)(ii)(B) by adding the words “ACG, National SMART Grant,” immediately after the words “Federal Pell Grant,”. PART 690—FEDERAL PELL GRANT PROGRAM 11. The authority citation for part 690 continues to read as follows: Authority: 20 U.S.C. 1070a, unless otherwise noted. § 690.78 [Amended] 12. Section 690.78 is amended by removing paragraph
(b)and redesignating paragraph
(c)as paragraph (b). PART 691—ACADEMIC COMPETITIVENESS GRANT
(ACG)AND NATIONAL SCIENCE AND MATHEMATICS ACCESS TO RETAIN TALENT GRANT (NATIONAL SMART GRANT) PROGRAMS 13. The authority citation for part 691 continues to read as follows: Authority: 20 U.S.C. 1070a-1, unless otherwise noted. 14. Section 691.6 is amended by revising paragraphs
(a)and
(b)to read as follows: § 691.6 Duration of student eligibility—undergraduate course of study.
(a)A student is eligible to receive up to one ACG Scheduled Award during each of the student's first and second academic years of enrollment over the course of the student's undergraduate education in all eligible programs as defined in § 691.2(d).
(b)A student is eligible to receive up to one National SMART Grant Scheduled Award during each of the student's third and fourth academic years of enrollment over the course of the student's undergraduate education in all eligible programs as defined in § 691.2(d). 15. Section 691.15 is amended by: A. In paragraph (a)(2), removing the words “for the same payment period” and adding, in their place, the words “in the same award year”. B. Revising paragraph (b)(1)(ii)(B). C. In paragraph (b)(1)(iii)(C), removing the words “at least”. D. In paragraph (c)(3), removing the words “at least”. The revision reads as follows: § 691.15 Eligibility to receive a grant.
(b)* * *
(1)* * *
(ii)* * *
(B)Has not previously been enrolled as a regular student in an eligible program while enrolled in high school; 16. Section 691.16 is amended in paragraph (d)(4) by removing the words “in the” and adding, in their place, the words “from an”. § 691.62 [Amended] 17. Section 691.62 is amended in paragraph
(c)by removing the regulatory citations “, 682.200(b), and 685.102(b)”. § 691.65 [Amended] 18. Section 691.65 is amended in paragraph (a)(2) by removing the words “for the same payment period” and adding, in their place, the words “in the same award year”. § 691.75 [Amended] 19. Section 691.75 is amended by: A. In paragraph (b)(3), removing the words “is no longer pursuing” and adding, in their place, the words “is not pursuing”. B. In paragraph (c), removing the words “is no longer pursuing” and adding, in their place, the words “is not pursuing”. § 691.78 [Amended] 20. Section 691.78 is amended by removing paragraph
(b)and redesignating paragraph
(c)as paragraph (b). 21. Section 691.80(a) is revised to read as follows: § 691.80 Redetermination of eligibility for a grant award.
(a)Change in receipt of Federal Pell Grant. If, after the beginning of an award year, a student otherwise eligible for an ACG or a National SMART Grant begins or ceases to receive a Federal Pell Grant in that award year, the institution must redetermine the student's eligibility for an ACG or a National SMART Grant in that award year. [FR Doc. E6-18197 Filed 10-31-06; 8:45 am] BILLING CODE 4000-01-P 71 211 Wednesday, November 1, 2006 Rules and Regulations Part V Department of Housing and Urban Development 24 CFR Part 291 Disposition of HUD-Acquired Single Family Property; Good Neighbor Next Door Sales Program; Final Rule DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 24 CFR Part 291 [Docket No. FR-4712-F-03] RIN 2502-AH72 Disposition of HUD-Acquired Single Family Property; Good Neighbor Next Door Sales Program AGENCY: Office of the Assistant Secretary for Housing—Federal Housing Commissioner, HUD. ACTION: Final rule. SUMMARY: This final rule establishes regulations for HUD's new Good Neighbor Next Door
(GNND)Sales Program. The requirements for the new program are closely modeled on those for HUD's Officer Next Door
(OND)and Teacher Next Door
(TND)Sales Programs. The GNND Sales Program replaces and builds upon the success of these two existing sales programs. The purpose of the GNND Sales Program is to improve the quality of life in distressed urban communities by encouraging law enforcement officers, teachers, and firefighters/emergency medical technicians, whose daily responsibilities represent a nexus to the needs of the community, to purchase and live in homes in these communities. This final rule follows publication of a September 8, 2005, proposed rule and takes into consideration the public comments received on the proposed rule. DATES: *Effective Date:* December 1, 2006. FOR FURTHER INFORMATION CONTACT: Laurie A. Maggiano, Acting Director, Office of Single Family Asset Management, Department of Housing and Urban Development, 451 Seventh Street, SW., Room 9172, Washington, DC 20410-8000; telephone
(202)708-1672 (this is not a toll-free number). Hearing- or speech-impaired individuals may access this number through TTY by calling the toll-free Federal Information Relay Service at
(800)877-8339. SUPPLEMENTARY INFORMATION: I. Background A vital part of HUD's mission is to promote homeownership and the revitalization of cities. In support of these goals, HUD permanently established the OND Sales Program on July 2, 1999 (64 FR 36210). The OND Sales Program enables full-time law enforcement officers to purchase HUD-acquired homes located in revitalization areas at a 50 percent discount from list prices. The success of the OND Sales Program led to the establishment of the TND Sales Program on December 7, 1999, which encourages eligible teachers to purchase HUD-acquired homes located in HUD-designated revitalization areas at a 50 percent discount from list prices. In June 2004, HUD completed an evaluation of the success of the OND and TND Sales Programs. The evaluation supported the view that an influx of police officers as homeowners results in a decrease in crime in a target neighborhood. HUD's evaluation of the OND/TND Sales Programs is available for download at *www.huduser.org.* II. The September 8, 2005, Proposed Rule and **Federal Register** Notice On September 8, 2005, HUD published a proposed rule to establish regulations for a new GNND Sales Program to replace and build upon the success of the OND and TND Sales Programs (70 FR 53479). While many of the requirements in the GNND Sales Program are similar, HUD proposed various modifications and improvements to the OND and TND requirements. The objective of the GNND program is to improve the quality of life in distressed urban communities by encouraging law enforcement officers, teachers, and firefighters/emergency medical technicians, whose daily responsibilities reflect a high level of public service commitment and represent a nexus to the needs of the community, to purchase and live in homes in these communities. An overview of the GNND Sales Program and HUD's proposed regulatory changes can be found in the preamble to the September 8, 2005, proposed rule. Also on September 8, 2005, in addition to the publication of the proposed rule, HUD also published a notice announcing the eligibility of firefighters and emergency medical technicians to immediately participate in the OND Sales Program (70 FR 53488). This expansion of the OND Sales Program was designed to help more firefighters and emergency medical technicians become homeowners and to advance the goals of the program to accelerate the revitalization of America's cities by promoting the integration of dedicated role models and mentors into the community. The September 8, 2005, notice authorized firefighters and emergency medical technicians to participate under, and be subject to, the regulations for the OND Sales Program. III. This Final Rule; Significant Changes to the September 8, 2005, Proposed Rule This final rule follows publication of the September 8, 2005, proposed rule, and takes into consideration the public comments received on the proposed rule. The regulations for the GNND Sales Program would be codified at 24 CFR part 291, subpart F, which currently contains the regulations for the OND Sales Program. After careful review of the public comments, HUD has made the following changes to the proposed rule: 1. *Financing of 203(k) rehabilitation costs.* The final rule has been revised to provide for the inclusion of rehabilitation costs in the mortgage used to purchase the home, where such purchase is being financed with an FHA-insured 203(k) mortgage. 2. *Providing for two backup bids in the event that the original purchaser fails to reach closing.* The final rule has been revised to provide for two backup purchasers, if sufficient bids are received, as alternatives should the first purchaser fail to complete the home purchase. 3. *Clarification of eligible teachers under the GNND Sales Program.* The final rule has been revised to clarify that only full-time teachers employed at state-accredited public and private schools serving students from the area where the home is located qualify as eligible participants under the GNND Sales Program. Other persons employed by an accredited public or private school are not eligible to participate in the GNND Sales Program. 4. *Properties Available for Sale under the GNND Sales Program.* The final rule clarifies that the properties available for sale under the GNND Sales Program will be the same types of properties eligible for purchase under the OND and TND programs. Specifically, the final rule clarifies that occupied properties, properties located in Asset Control Areas, and properties that HUD determines will be sold through an alternative sales method will not be made available for purchase under the GNND Sales Program. The new regulatory language does not revise existing policies, but rather codifies existing practices of the OND and TND programs. Regulatory codification of the types of properties made available for sale will help provide the public with greater understanding and clarity of the process followed by HUD in the administration of the GNND Sales Program. 5. * Clarification of the terms “closing costs,” “selling broker commissions,” and “downpayment.” * This final rule continues to provide that HUD will not pay a buyer's closing costs on the purchase of a property through the GNND Sales Program. Further, HUD has revised the rule to specify that in no event will HUD pay selling broker commissions. The addition of this phrase clarifies that the purchaser is wholly responsible for paying closing costs and selling broker commissions in a transaction under this program. The closing costs are expenses borne by the purchaser to complete the sale. The selling broker's commission is one component of the closing costs owed by the purchaser. The revision also serves to clarify that closing costs and selling broker commissions are not properly considered to be part of a required downpayment. The downpayment is a financial outlay made by the purchaser to acquire equity in the property and does not include closing or other costs that do not represent an investment in equity. IV. Discussion of Public Comments Received on the September 8, 2005, Proposed Rule The public comment period on the proposed rule closed on November 7, 2005. HUD received 16 public comments in response to the proposed rule. Comments were received from a realtor's association, a state home program, a mortgage corporation, a law enforcement labor organization, a non-profit organization, teachers, a firefighter, realtors, and individual citizens. This section of the preamble presents a summary of the significant issues raised by the public commenters on the September 8, 2005, proposed rule, and HUD's responses to those issues. *Comment:* A statement clarifying how real estate broker commissions are to be applied at closing to the purchase price is needed so that closing procedures will be uniformly interpreted and implemented. Two commenters wrote that given the number of different players involved in the disposition of the HUD single-family properties, written procedures for contracts and settlement statements are necessary to avoid confusion. The commenters asked for clarification as to how commissions and closing costs apply at closing to the purchase price, and specifically whether the seller or the buyer (OND/TND) is responsible for paying the broker's commission and closing costs. *HUD Response.* HUD is revising the rule in response to these comments. Specifically, HUD has revised § 291.545(c) to specify that in no event will HUD pay selling broker commissions. The addition of this phrase clarifies that the purchaser is wholly responsible for paying closing costs and selling broker commissions in a transaction under this program. The final rule continues to provide that in no event will HUD pay a buyer's closing costs on the purchase of a property through the GNND Sales Program. However, a purchaser using a mortgage insured by the Federal Housing Administration
(FHA)to finance the purchase of a home through the GNND Sales Program may include reasonable and customary closing costs within the amount borrowed with the FHA-insured mortgage. The revision also serves to clarify that closing costs and selling broker commissions are not properly considered to be part of a required downpayment. The downpayment is a financial outlay made by the purchaser to acquire equity in the property and does not include closing or other costs that do not represent an investment in equity. *Comment:* The requirement that purchasers submit bids on GNND homes through a participating real estate broker unnecessarily imposes the additional cost of a commission and should be eliminated. One commenter wrote that since the regulations do not specify that brokers must waive their normal commission, participants would incur an additional cost they may not be able to afford. The commenter wrote that brokers are unnecessary because HUD is governing the disposition of these homes. The commenter also wrote that this requirement could result in a special pool of brokers that would unfairly funnel GNND business to this select group. *HUD Response.* HUD has not revised the rule in response to this comment. The use of brokers benefits participants because they have specialized knowledge and can facilitate the home buying process. HUD disagrees that the requirement would result in the establishment of a select group of brokers. Any real estate broker who has agreed to comply with HUD requirements may participate in the GNND Sales Program. Due to continued competition among brokers, the commission charged by brokers will have to be responsive to purchasers' ability and willingness to pay, and be commensurate with the services provided. *Comment:* Support for GNND Sales Program. Several commenters wrote in support of the GNND Sales Program. In particular, the commenters expressed strong support for expanding eligibility to include firefighters and emergency medical technicians. The commenters wrote that the rule would make buying a home for GNND Sales Program participants feasible by significantly reducing the cost of housing. *HUD Response.* HUD appreciates the support expressed by the commenters for the GNND Sales Program. The final rule will benefit participating law enforcement officers, teachers, firefighters, and emergency medical technicians, as well as the communities that they serve. The regulatory requirements established by this final rule will help to ensure that the inventory of available homes is distributed to most effectively realize the goals of the program. *Comment:* As formulated, the success of the GNND Sales Program is in jeopardy because the universe of eligible participants has been expanded while the number of properties available for purchase has been reduced. One commenter objected to the regulatory cap on sales of HUD-acquired homes under the GNND Sales Program to no greater than 5 percent of the number of “Part A” mortgage insurance conveyance claims paid by HUD in the immediately preceding fiscal year. The commenter wrote that the cap would force law enforcement officers, teachers, and firefighters/emergency medical technicians to compete against each other. The commenter wrote that this will make it much more difficult to achieve the desired goal of improving the quality of life in distressed urban communities. The commenter also wrote that relying on a lottery system to award properties on which there are multiple bids shows an indifference to the success of the OND Sales Program. The commenter recommended that the OND Sales Program remain a program separate from the GNND Sales Program. *HUD Response.* HUD has not revised the rule in response to this comment. HUD continues to believe that expanding eligibility to include firefighters and emergency medical technicians will bring justifiable added benefit to the communities to be served by the GNND Sales Program. Neither the increased number of eligible participants nor the cap on the volume of properties available will result in a diminished supply of homes available for sale through the program. The purpose of the cap is to provide control over properties in the event there is an unanticipated surge in the number of foreclosures in revitalization areas, which in turn would result in a surge in payments of FHA insurance. HUD does not anticipate the cap as having any practical effect on the supply of homes available because the volume of recorded sales in recent years has consistently been substantially below the proposed cap. Additionally, the rule provides HUD with the authority to adjust the percentage of the cap for any fiscal year should adjustment be warranted. *Comment:* The revision to the definition of law enforcement officer would exclude federal law enforcement and other officers, thereby reducing the number of law enforcement officers who are eligible to participate in the program. One commenter wrote that the narrowing of the definition of “law enforcement officer” would exclude federal law enforcement officers employed in a law enforcement capacity by governmental agencies that are not separate, specific law enforcement agencies. The commenter recommended revising the rule so that such federal law enforcement officers can participate. The commenter also wrote that the definition should continue to include law enforcement officers employed by public and private universities and colleges. The commenter, relying on the evaluation report of the OND Sales Program, wrote that it is the presence of officers in distressed communities that has a positive impact and not whether or not they have authority to make arrests. *HUD Response.* HUD has not revised the rule in response to this comment. One of the purposes of the OND Sales Program was to revitalize distressed communities by deterring the commission of crimes with the presence of law enforcement officers in these areas. The GNND Sales Program continues to focus on traditional law enforcement officers with general arrest authority, because their work and presence in the community most closely relates to this policy. *Comment:* First responders employed by nongovernmental entities should be eligible for the GNND Program. One commenter wrote that since first responders have to be employed by a governmental agency in order to be eligible to participate in the GNND Sales Program, responders providing the same services through a private entity are being excluded unfairly. The commenter wrote that all emergency medical technicians and paramedics should be included since they save lives in all communities. *HUD Response.* HUD has not revised the rule in response to this comment. HUD recognizes that firefighters and emergency medical technicians employed by private entities sometimes perform similar services as those employed by governmental entities. However, the inclusion of privately employed firefighters and emergency medical technicians would create ambiguity in assessing an individual's eligibility to participate. This broader, more ambiguous approach would also result in a costly administrative burden for HUD to determine eligibility and increase the risk of awarding properties to ineligible individuals. To assure that the purposes of the GNND Sales Program can be fulfilled in a cost-effective and efficient manner, HUD has not revised the rule in response to this comment. *Comment:* The eligibility requirements of not having previously owned any residential real property for one year prior to the date of submitting a bid and not having previously purchased a home under the GNND Sales Program should not apply to law enforcement officers. The commenter wrote that this new restriction fails to consider that law enforcement officers choosing to participate in the program may move from their current home to a distressed community to become more involved in the community they serve, or may participate or have participated in the OND Sales Program and then transfer or have since been transferred to another jurisdiction that has GNND properties available. *HUD Response.* HUD has not revised the rule in response to this comment. The eligibility requirements referred to by the commenter support increasing the overall number of participants who can benefit from the program while avoiding opportunistic behavior by repeat participants. Further, in the past, allowing current homeowners to submit bids has been a source of problems in reaching closing with those purchasers. This new requirement better aligns with the Department's interest in increasing the number of homeowners and opening up homeownership to new families. *Comment:* The amount a purchaser can borrow to finance the purchase of a home using an FHA-insured mortgage should depend on the type of FHA-insured mortgage issued. Two commenters wrote that § 291.545(b) of the rule, which establishes the maximum amount of an FHA-insured mortgage used to purchase a GNND home, should be revised to reflect 203(k) rehabilitation loans. Under the proposed rule, the amount of the FHA-insured mortgage may not exceed the discounted sales price of the home plus the closing costs and pre-paid items. However, under the 203(k) program, a borrower may also finance the costs of rehabilitation of the property along with the purchase cost of the home. The commenter suggested that § 291.545(b) be revised to permit the financing of rehabilitation costs where the purchase of the home is being financed with an FHA-insured 203(k) mortgage. *HUD Response.* HUD agrees that the amount of financing available to the participant should depend on the type of FHA-insured mortgage being utilized. Participants utilizing an FHA-insured mortgage may finance the discounted sales price plus reasonable closing costs. Additionally, rehabilitation expenses may be incorporated into the FHA-insured mortgage if the purchase of the home is being financed with an FHA-insured 203(k) mortgage. The Section 203(k) program is HUD's primary program for the rehabilitation and repair of single family properties. As such, it is an important tool for community and neighborhood revitalization and for expanding homeownership opportunities, which HUD agrees should be available to GNND Sales Program participants. Accordingly, HUD has modified § 291.545(b) to explicitly provide for the inclusion of rehabilitation costs financed with an FHA-insured 203(k) loan. *Comment:* Creating a distinction as to closing costs between conventional and FHA-insured mortgages unfairly penalizes participants who choose not to use an FHA-insured mortgage. One commenter wrote that participants choosing conventional mortgages will have to pay closing costs out-of-pocket while those with an FHA-insured mortgage may be able to finance reasonable and customary closing costs. *HUD Response.* HUD is not altering the final rule in response to this comment. The scope of HUD's regulatory authority extends to FHA-insured mortgages. HUD is empowered to set the terms and conditions of FHA-insured mortgages. Since conventional mortgages are not subjected to HUD's regulatory authority, such mortgages pose additional risk. Regardless of the type of financing used by a purchaser, HUD will not pay any closing costs. With regard to the downpayment, purchasers using an FHA-insured mortgage may make a downpayment of $100. *Comment:* Forfeiture of an earnest money deposit upon the failure of the participant to close, without regard to the underlying circumstances, is overly burdensome. One commenter recommended that a provision be included to ensure that earnest money deposits be returned if extenuating circumstances occur that keep a sale from closing. *HUD Response.* HUD has not revised the rule in response to these comments. The requirement that a potential purchaser make a minimal earnest money deposit (which will never exceed $2,000) helps to ensure that prospective purchasers are acting in good faith and are willing and able to proceed to closing on the purchase of the home. *Comment:* Disqualifying a potential participant on the basis that his/her spouse previously owned residential property or participated in the GNND Program could result in unintended consequences. One commenter wrote that participant eligibility should be determined on an individual basis. The commenter wrote that evaluating eligibility as proposed will entice people to divorce in order to take advantage of this program, resulting in weaker families and communities. *HUD Response.* HUD has not revised the rule in response to this comment. The spousal eligibility requirement is consistent with the policy of permitting one-time participation in the GNND Sales Program and supports HUD's interest in promoting homeownership opportunities to first-time homebuyers. *Comment:* GNND participants should not be required to make an earnest money deposit. One commenter wrote that the GNND Sales Program should operate like the existing OND and TND Sales Programs and not require a downpayment. Another commenter questioned having to put up any money when the quality of the homes is substandard and would only agree to make such a deposit if it would ensure better quality homes and locations. A third commenter also wrote that the GNND Sales Program should not require an earnest money deposit of up to $2,000 so that the Program continues to make purchasing a home affordable for teachers and officers serving their communities. *HUD Response.* HUD has not revised the rule in response to these comments. The amount of the required earnest money deposit will not impose an undue financial burden on potential home purchasers. The required deposit is equal to one percent of the list price, but no more than $2,000. This minimal earnest money deposit helps to ensure that purchasers are acting in good faith and are willing and able to proceed to closing on the purchase of the home. *Comment:* Nonprofit organizations should continue to be allowed to purchase properties through the GNND Sales Program. One commenter wrote that nonprofit entities should continue to be allowed to purchase properties under the GNND Sales Program so that they can rehabilitate the properties and then sell them to eligible participants at the discounted rate. The commenter wrote that participating nonprofit organizations could enable more GNND transactions to reach closing, thereby reducing the number of homes that go to open bidding. *HUD Response.* HUD has not adopted the change suggested by the commenter. The inclusion of nonprofit organizations unnecessarily inserts a third party between the ultimate program beneficiary and HUD. The Department believes that limiting participation in the GNND Sales Program to the ultimate purchasers—law enforcement officers, teachers, and firefighters/emergency medical technicians—will better focus the program and help to ensure that the GNND Sales Program accomplishes its goals. *Comment:* The rule should provide for additional backup bids. One commenter wrote that HUD should select more than one backup bid in the event that the winning bidder is unable to close on the purchase of the property. Specifically, the commenter recommended that HUD select up to seven backup bids. *HUD Response.* HUD has modified the final rule in response to this comment. Recognizing the programmatic goal of bringing community-minded service professionals into distressed communities, HUD acknowledges that it may be necessary to allow for multiple backup bids from eligible officers, teachers, firefighters, or emergency medical technicians in the event that a winning bidder is unable to proceed to closing. Two backup purchasers will be given the opportunity to proceed to closing. If these purchasers fail to complete the closing on the property, it will then be made available for sale to other purchasers. While the commenter suggested that seven backup bids be considered, HUD believes that doing so is unnecessarily administratively burdensome and could delay the availability of HUD acquired homes for purchase. In settling on two backup bids, HUD believes that it has struck an equitable balance between providing eligible participants with the maximum opportunity to purchase inventoried properties and enabling efficient management to effectively move unsold properties to the open market. V. Findings and Certifications Executive Order 12866, Regulatory Planning and Review The Office of Management and Budget
(OMB)reviewed this rule under Executive Order 12866 (entitled “Regulatory Planning and Review”). OMB determined that this rule is a significant regulatory action as defined in section 3(f) of the Order (although not economically significant, as provided in section 3(f)(1) of the Order). The docket file is available for public inspection in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 Seventh Street, SW., Room 10276, Washington, DC 20410-0500. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the docket file by calling the Regulations Division at
(202)708-3055 (this is not a toll-free number). Hearing- and speech-impaired persons may access the telephone number listed above via TTY by calling the Federal Information Relay Service at
(800)877-8339. Information Collection Requirements The information collection requirements contained in this final rule have been approved by OMB under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) and assigned OMB Control Number 2502-0306. In accordance with the Paperwork Reduction Act, HUD may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection displays a currently valid OMB control number. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538)
(UMRA)establishes requirements for federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments, and the private sector. This rule does not impose any federal mandates on any state, local, or tribal governments, or the private sector within the meaning of UMRA. Executive Order 13132, Federalism Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial direct compliance costs on state and local governments and is not required by statute, or the rule preempts state law, unless the agency meets the consultation and funding requirements of section 6 of the Order. This final rule does not have federalism implications and does not impose substantial direct compliance costs on state and local governments or preempt state law within the meaning of the Order. Environmental Impact A Finding of No Significant Impact with respect to the environment was made at the proposed rule stage in accordance with HUD regulations at 24 CFR part 50, which implement section 102(2)(C) of the National Environmental Policy Act of 1969 (42 U.S.C. 4332(2)(C)). The Finding of No Significant Impact remains applicable to this final rule and is available for public inspection between the hours of 8 a.m. and 5 p.m. weekdays in the Regulations Division, Office of General Counsel, Department of Housing and Urban Development, 451 Seventh Street, SW., Room 10276, Washington, DC 20410-0500. Due to security measures at the HUD Headquarters building, please schedule an appointment to review the finding by calling the Regulations Division at
(202)708-3055 (this is not a toll-free number). Hearing- and speech-impaired persons may access the telephone number listed above via TTY by calling the Federal Information Relay Service at
(800)877-8339. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 *et seq.* ) generally requires an agency to conduct a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements, unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. This final rule promotes safe neighborhoods by enabling law enforcement officers, teachers, and firefighters/emergency medical technicians to purchase HUD-acquired single-family homes at a significant discount. The final rule places restrictions on the use of a home purchased through the GNND Sales Program, which affects the individual purchasing the home. This rule, however, does not place restrictions on any small entities involved in any transactions related to the GNND Sales Program. Accordingly, the undersigned certifies that this final rule would not have a significant economic impact on a substantial number of small entities. Catalog of Federal Domestic Assistance Numbers The Catalog of Federal Domestic Assistance Number for the Officer Next Door Program is 14.198. The Catalog of Federal Domestic Assistance Number for the Teacher Next Door Initiative is 14.310. List of Subjects in 24 CFR Part 291 Community facilities, Conflict of interests, Homeless, Lead poisoning, Low and moderate income housing, Mortgages, Reporting and recordkeeping requirements, Surplus government property. Accordingly, for the reasons described in the preamble, HUD amends 24 CFR part 291 as follows: PART 291—DISPOSITION OF HUD-ACQUIRED SINGLE FAMILY PROPERTY 1. The authority citation for 24 CFR part 291 continues to read as follows: Authority: 12 U.S.C. 1701 *et seq.* ; 42 U.S.C. 1441, 1441a, 1551a, and 3535(d). 2. Subpart F is revised to read as follows: Subpart F—Good Neighbor Next Door Sales Program Sec. 291.500 Purpose. 291.505 Definition of “unit of general local government.” 291.510 Overview of the GNND Sales Program. 291.515 Purchaser qualifications. 291.520 Eligible law enforcement officers. 291.525 Eligible teachers. 291.530 Eligible firefighter/emergency medical technicians. 291.535 Earnest money deposit. 291.540 Owner-occupancy term. 291.545 Financing purchase of the home. 291.550 Second mortgage. 291.555 Refinancing. 291.560 Ineligibility of multiple-unit properties. 291.565 Continuing obligations after purchase. Subpart F—Good Neighbor Next Door Sales Program § 291.500 Purpose. This subpart describes the policies and procedures governing the Good Neighbor Next Door
(GNND)Sales Program. The purpose of the GNND Sales Program is to improve the quality of life in distressed urban communities. This is to be accomplished by encouraging law enforcement officers, teachers, and firefighters/emergency medical technicians, whose daily responsibilities and duties represent a nexus to the needs of the community, to purchase and live in homes in these communities. § 291.505 Definition of “unit of general local government.” For purposes of this subpart, the term *unit of general local government* means a county or parish, city, town, township, or other political subdivision of a state. § 291.510 Overview of the GNND Sales Program.
(a)*General.* The GNND Sales Program enables a full-time law enforcement officer, teacher, or firefighter/emergency medical technician to purchase a specifically designated HUD-acquired home located in a HUD-designated revitalization area:
(1)At a 50 percent discount from the list price; and
(2)With a downpayment of $100, but only if the law enforcement officer, teacher, or firefighter/emergency medical technician finances the home through a Federal Housing Administration
(FHA)insured mortgage.
(b)*Eligible properties.* Under the GNND Sales Program, single-unit properties acquired by HUD located in HUD-designated revitalization areas (except occupied properties), those located in Asset Control Areas, or those that HUD has determined will be sold through an alternative sales method will be made available to interested law enforcement officers, teachers, and firefighters/emergency medical technicians prior to listing the properties for sale to other purchasers.
(c)*Multiple bids.* In the event that several bids are received on a single property, HUD will randomly select a winning offer by lottery and will also randomly select two backup bids, to be utilized in the order selected, in the event the winning purchaser is unable to close on the property. If both of the backup purchasers are also unable to close on the property, the property will then be made available for sale to purchasers through other sales methods.
(d)*Real estate brokers.* Law enforcement officers, teachers, and firefighters/emergency medical technicians must submit bids through a participating real estate broker. Any real estate broker who has agreed to comply with HUD requirements may participate in the GNND Sales Program. Real estate brokers may submit unlimited numbers of bids on an individual property provided each bid is from a different prospective purchaser.
(e)*Cap on sales.* The number of HUD-acquired homes sold under the GNND Sales Program in a fiscal year shall not exceed 5 percent of the number of “Part A” mortgage insurance conveyance claims paid by HUD in the prior fiscal year. The cap shall apply on a national basis, but HUD reserves the right to geographically apportion the cap to address regional or local differences in the number of homes sold through the GNND Sales Program. Additionally, HUD may adjust the percentage of the cap for any fiscal year. Any HUD determination to geographically distribute the cap, change a current geographic distribution, or adjust the percentage of the cap will be announced by HUD through publication of a notice in the **Federal Register** at least 30 days before the revision takes effect. § 291.515 Purchaser qualifications. To qualify to purchase a home through the GNND Sales Program:
(a)The person must be employed as a law enforcement officer (as described in § 291.520), teacher (as described in § 291.525), or firefighter/emergency medical technician (as described in § 291.530) at the time he/she submits a bid to purchase a home through the program and at the time of closing on the purchase of the home;
(b)The person must certify to his/her good faith intention to continue employment as a law enforcement officer (as described in § 291.520), teacher (as described in § 291.525), or firefighter/emergency medical technician (as described in § 291.530) for at least one year following the date of closing;
(c)The person must make an earnest money deposit at the time of signing the contract for purchase of the home, as described in § 291.535;
(d)The person must agree to own, and live in as his/her sole residence, the home for the entire duration of the owner-occupancy term, as described in § 291.540, and to certify to that occupancy, as described in § 291.565;
(e)The person must agree to execute a second mortgage and note on the home, as described in § 291.550, for the difference between the list price and the discounted selling price;
(f)Neither the person (nor his/her spouse) may have owned any residential real property during the year prior to the date of submitting a bid on the home being acquired through the GNND Sales Program;
(g)Neither the person (nor his/her spouse) must ever have purchased another home under the GNND Sales Program or under the predecessor Officer Next Door Sales and Teacher Next Door Sales Programs; and
(h)Although both spouses, if otherwise eligible, may submit a bid on a single home made available for sale under the GNND Sales Program, HUD will approve a bid from only one spouse. § 291.520 Eligible law enforcement officers. A person qualifies as a law enforcement officer for the purposes of the GNND Sales Program if the person is:
(a)Employed full-time by a law enforcement agency of the federal government, a state, a unit of general local government, or an Indian tribal government; and
(b)In carrying out such full-time employment, the person is sworn to uphold, and make arrests for violations of, federal, state, tribal, county, township, or municipal laws. § 291.525 Eligible teachers. A person qualifies as a teacher for the purposes of the GNND Sales Program if the person is:
(a)Employed as a full-time teacher by a state-accredited public school or private school that provides direct services to students in grades pre-kindergarten through 12; and
(b)The public or private school where the person is employed as a teacher serves students from the area where the home is located in the normal course of business. § 291.530 Eligible firefighter/emergency medical technicians. A person qualifies as a firefighter/emergency medical technician for the purposes of the GNND Sales Program if the person is employed full-time as a firefighter or emergency medical technician by a fire department or emergency medical services responder unit of the federal government, a state, unit of general local government, or an Indian tribal government serving the area where the home is located. § 291.535 Earnest money deposit.
(a)*General.* The earnest money deposit is the sum of money that must be paid by the law enforcement officer, teacher, or firefighter/emergency medical technician at the time of submitting a bid to purchase a property under the GNND Sales Program. Each bid must be accompanied by a certification from the real estate broker that the earnest money deposit has been deposited in the broker's escrow account.
(b)*Amount of earnest money deposit.* The amount of the earnest money deposit required is an amount equal to one percent of the list price, but no less than $500 and no more than $2,000.
(c)*Acceptance or rejection of offer.* If an offer is accepted, the earnest money deposit will be credited to the purchaser at closing. If the offer is rejected, the earnest money deposit will be returned. Earnest money deposits are subject to total forfeiture for failure of the participant to close a sale. § 291.540 Owner-occupancy term.
(a)*General.* The owner-occupancy term is the number of months a participant in the GNND Sales Program must agree to own, and live in as his/her sole residence, a home purchased through the GNND Sales Program.
(b)*Start of owner-occupancy term.* The owner-occupancy term is 36 months, commencing either:
(1)Thirty days following closing if HUD determines that the home requires no more than $10,000 in repairs prior to occupancy;
(2)Ninety days following closing if HUD determines that the home requires more than $10,000, but not more than $20,000 in repairs prior to occupancy; or
(3)One hundred and eighty days following closing if HUD determines that the home requires more than $20,000 in repairs prior to occupancy.
(c)*Interruptions to owner-occupancy term* —(1) *General.* HUD may, at its sole discretion, allow interruptions to the 36-month owner-occupancy term if it determines that the interruption is necessary to prevent hardship, but only if the law enforcement officer, teacher, or firefighter/emergency medical technician submits a written and signed request to HUD containing the following information:
(i)The reason(s) why the interruption is necessary;
(ii)The dates of the intended interruption; and
(iii)A certification from the law enforcement officer, teacher, or firefighter/emergency medical technician that:
(A)The law enforcement officer, teacher, or firefighter/emergency medical technician is not abandoning the home as his/her permanent residence; and
(B)The law enforcement officer, teacher, or firefighter/emergency medical technician will resume occupancy of the home upon the conclusion of the interruption and complete the remainder of the 36-month owner-occupancy term.
(2)*Timing of written request to HUD.* The written request for approval of an interruption to the owner-occupancy term must be submitted to HUD at least 30 calendar days before the anticipated interruption. Military service members protected by the Servicemembers Civil Relief Act need not submit their written request to HUD 30 days in advance of an anticipated interruption, but should submit their written request as soon as practicable upon learning of a potential interruption, in order to ensure timely processing and approval of the request. § 291.545 Financing purchase of the home.
(a)*Purchase using conventional financing.* If the law enforcement officer, teacher, or firefighter/emergency medical technician uses conventional financing to purchase a home under the GNND Sales Program, the amount of the mortgage may not exceed the discounted sales price of the home.
(b)*Purchase with FHA-insured mortgage.*
(1)A law enforcement officer, teacher, or firefighter/emergency medical technician using an FHA-insured mortgage to finance purchase of the home may finance reasonable and customary closing costs with the FHA-insured mortgage.
(2)The amount of the FHA-insured mortgage may not exceed the discounted sales price of the home plus:
(i)The closing costs; and
(ii)The costs of rehabilitating and/or improving the home, where purchase of the home is being financed with an FHA-insured 203(k) rehabilitation loan (see 24 CFR part 203).
(c)*Closing costs and selling broker's commissions.* In no event will HUD pay a buyer's closing costs on the purchase of a property or a selling broker's commission through the GNND Sales Program. § 291.550 Second mortgage.
(a)*General.* The second mortgage is a mortgage and note, payable to HUD, on the home purchased through the GNND Sales Program in the amount of the difference between the list price of the home and the discounted selling price.
(b)*Second mortgage term.* The term of the second mortgage is equal to the owner-occupancy term (36 months) plus 30, 90, or 180 days, as provided in § 291.540(b). The amount of the second mortgage will be reduced by 1/36th on the last day of each month of occupancy following the occupancy start date. At the end of the 36th month of occupancy, the amount of the second mortgage will be zero.
(c)*Sale or vacancy of home.* If the law enforcement officer, teacher, or firefighter/emergency medical technician sells his/her home or stops living in the home as his/her sole residence prior to the expiration of the owner-occupancy term, he/she will owe HUD the amount due on the second mortgage as of the date the property is either sold or vacated. § 291.555 Refinancing.
(a)*General.* A law enforcement officer, teacher, or firefighter/emergency medical technician may refinance the mortgage and note used to purchase the home. However, the total of the refinanced mortgage and the remaining principal balance of the second mortgage may not exceed 95 percent of the value of the property, as appraised at the time of the refinancing. Unless HUD permits subordination pursuant to paragraph
(b)of this section, the second mortgage described in § 291.550 must hold a superior lien position to the refinanced mortgage.
(b)*Subordination of second mortgage.* HUD may permit subordination of the second mortgage to the refinanced mortgage, but only if HUD, at its sole discretion, determines that the refinancing will satisfy one of the following:
(1)Will result in a lower annual percentage rate
(APR)on the first mortgage;
(2)Will be undertaken pursuant to HUD's Section 203(k) Rehabilitation Loan Insurance Program in order to rehabilitate or repair the home; or
(3)Is necessary to prevent the law enforcement officer, teacher, or firefighter/emergency medical technician from defaulting on the first mortgage. § 291.560 Ineligibility of multiple-unit properties. Only single-unit properties are eligible for the GNND Sales Program. § 291.565 Continuing obligations after purchase. To remain in compliance with the GNND Sales Program, the law enforcement officer, teacher, or firefighter/emergency medical technician must, for the entire duration of the owner-occupancy term:
(a)Continue to own, and live in as his/her sole residence, the home purchased through the GNND Sales Program; and
(b)Certify initially and once annually thereafter during and at the conclusion of the owner-occupancy term that he/she was at all times fully in compliance with paragraph
(a)of this section. Dated: October 25, 2006. Brian D. Montgomery, Assistant Secretary for Housing—Federal Housing Commissioner. [FR Doc. E6-18456 Filed 10-31-06; 8:45 am] BILLING CODE 4210-67-P 71 211 Wednesday, November 1, 2006 Presidential Documents Part VI The President Presidential Determination No. 2006-25 of September 26, 2006—Presidential Determination With Respect to Foreign Governments' Efforts Regarding Trafficking in Persons Presidential Determination No. 2007-1 of October 11, 2006—Presidential Determination on FY 2007 Refugee Admissions Numbers and Authorizations of In-Country Refugee Status Pursuant to Sections 207 and 101(a)(42), respectively, of the Immigration and Nationality Act, and Determination Pursuant to Section 2(b)(2) of the Migration and Refugee Assistance Act, as Amended Presidential Determination No. 2007-2 of October 13, 2006—Presidential Determination on Waiver and Certification of Statutory Provisions Regarding the Palestine Liberation Organization
(PLO)Office Title 3— The President Presidential Determination No. 2006-25 of September 26, 2006 Presidential Determination With Respect to Foreign Governments' Efforts Regarding Trafficking in Persons Memorandum for the Secretary of State Consistent with section 110 of the Trafficking Victims Protection Act of 2000 (Division A of Public Law 106-386), as amended, (the “Act”), I hereby: • Make the determination provided in section 110(d)(1)(A)(i) of the Act, with respect to Burma, Venezuela, and Zimbabwe, not to provide certain funding for those countries' governments for fiscal year 2007, until such government complies with the minimum standards or makes significant efforts to bring itself into compliance, as may be determined by the Secretary of State in a report to the Congress pursuant to section 110(b) of the Act; • Make the determination provided in section 110(d)(1)(A)(ii) of the Act, with respect to Cuba, the Democratic People's Republic of Korea, Iran, and Syria, not to provide certain funding for those countries' governments for fiscal year 2007, until such government complies with the minimum standards or makes significant efforts to bring itself into compliance, as may be determined by the Secretary of State in a report to the Congress pursuant to section 110(b) of the Act; • Make the determination provided in section 110(d)(3) of the Act, concerning the determinations of the Secretary of State with respect to Belize and Laos; • Determine, consistent with section 110(d)(4) of the Act, with respect to Iran, that funding for educational and cultural exchange programs described in section 110(d)(1)(A)(ii) of the Act that include educators, municipal leaders, religious leaders, journalists, economists, or sports or cultural figures would promote the purposes of the Act or is otherwise in the national interest of the United States; • Determine, consistent with section 110(d)(4) of the Act, with respect to Saudi Arabia, that provision to Saudi Arabia of all programs, projects, or activities of assistance described in sections 110(d)(1)(A)(i) and 110(d)(1)(B) of the Act would promote the purposes of the Act or is otherwise in the national interest of the United States; • Determine, consistent with section 110(d)(4) of the Act, with respect to Sudan, that provision to Sudan of all programs, projects, or activities of assistance described in sections 110(d)(1)(A)(i) and 110(d)(1)(B) of the Act would promote the purposes of the Act or is otherwise in the national interest of the United States; • Determine, consistent with section 110(d)(4) of the Act, with respect to Syria, that funding for educational and cultural exchange programs described in section 110(d)(1) (A)(ii) of the Act that include educators, municipal leaders, religious leaders, journalists, economists, or sports or cultural figures would promote the purposes of the Act or is otherwise in the national interest of the United States; • Determine, consistent with section 110(d)(4) of the Act, with respect to Uzbekistan, that provision to Uzbekistan of all programs, projects, or activities of assistance described in sections 110(d)(1)(A)(i) and 110(d)(1)(B) of the Act would promote the purposes of the Act or is otherwise in the national interest of the United States; • Determine, consistent with section 110(d)(4) of the Act, with respect to Venezuela, for all programs, projects, or activities of assistance for victims of trafficking in persons or to combat such trafficking, or for strengthening the democratic process, including strengthening political parties and supporting electoral observation and monitoring and related programs, or for public diplomacy, that provision to Venezuela of the assistance described in sections 110(d) (1)(A)(i) and 110(d)(1)(B) of the Act for such programs, projects, or activities would promote the purposes of the Act or is otherwise in the national interest of the United States; • Determine, consistent with section 110(d)(4) of the Act, with respect to Zimbabwe, for all programs, projects, or activities of assistance for victims of trafficking in persons or to combat such trafficking, for the promotion of health or good governance, or which would have a significant adverse effect on vulnerable populations if suspended, that provision to Zimbabwe of the assistance described in sections 110(d)(1)(A)(i) and 110(d)(1)(B) of the Act for such programs, projects, or activities would promote the purposes of the Act or is otherwise in the national interest of the United States; • Determine, consistent with section 110(d)(4) of the Act, that assistance to Venezuela or Zimbabwe described in section 110(d)(1)(B) of the Act that:
(1)is a regional program, project, or activity under which the total benefit to Venezuela or Zimbabwe does not exceed 10 percent of the total value of such program, project, or activity; or
(2)has as its primary objective the addressing of basic human needs, as defined by the Department of the Treasury with respect to other, existing legislative mandates concerning U.S. participation in the multilateral development banks; or
(3)is complementary to or has similar policy objectives to programs being implemented bilaterally by the United States Government; or
(4)has as its primary objective the improvement of the country's legal system, including in areas that impact the country's ability to investigate and prosecute trafficking cases or otherwise improve implementation of a country's anti-trafficking policy, regulations, or legislation; or
(5)in engaging a government, international organization, or civil society organization, and that seeks as its primary objective(s) to:
(a)increase efforts to investigate and prosecute trafficking in persons crimes;
(b)increase protection for victims of trafficking through better screening, identification, rescue/removal, aftercare (shelter, counseling) training and reintegration; or
(c)expand prevention efforts through education and awareness campaigns highlighting the dangers of trafficking or training and economic empowerment of populations clearly at risk of falling victim to trafficking would promote the purposes of the Act or is otherwise in the national interest of the United States. The certification required by section 110(e) of the Act is provided herewith. You are hereby authorized and directed to submit this determination to the Congress and to publish it in the **Federal Register** . GWBOLD.EPS THE WHITE HOUSE, Washington, September 26, 2006. [FR Doc. 06-9027 Filed 10-31-06; 8:45 am]
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25 references not yet in our index
  • Pub. L. 109-171
  • Pub. L. 108-409
  • Pub. L. 107-139
  • Pub. L. 109-66
  • Pub. L. 109-67
  • Pub. L. 109-234
  • Pub. L. 96-342
  • 34 CFR 668
  • 16 USC 1681c-1
  • 16 USC 1681a(q)(3)
  • 34 CFR 673
  • 20 USC 421-429
  • 42 USC 2751-2756b
  • 34 CFR 74.26
  • 34 CFR 682.601(a)(7)
  • 34 CFR 691
  • 34 CFR 690
  • 34 CFR 600
  • 34 CFR 79
  • 24 CFR 291
  • 44 USC 3501-3520
  • 2 USC 1531-1538
  • 24 CFR 50
  • 24 CFR 203
  • Pub. L. 106-386
Citation graph
cites case law
Rules and Regulations
Final regulations
U.S.C.§ 7502
Fed. Reg.Notices
U.S.C.§ 1087–1
U.S.C.§ 1001
C.F.R.§ 668.22
U.S.C.§ 1071
U.S.C.§ 7501
U.S.C.§ 1087a
U.S.C.§ 1070a–1
Pub. L.Pub. L. 109-171
Pub. L.Pub. L. 108-409
Pub. L.Pub. L. 107-139
Cites 45 · showing 12Cited by 0 across 0 sources
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