In addition to the changes that strengthen and improve the administration of the loan programs authorized under HEA, these final regulations also incorporate certain statutory changes made to the HEA by the College Cost Reduction and Access Act (CCRAA) (Pub. L. 11084). These changes are:

Under the Administrative Procedure Act (5 U.S.C. 553), the Department is generally required to publish a notice of proposed rulemaking and provide the public with an opportunity to comment on proposed regulations prior to issuing final regulations. In addition, all Department regulations for programs authorized under Title IV of the HEA are subject to the negotiated rulemaking requirements of section 492 of the HEA. However, both the APA and HEA provide for exemptions from these rulemaking requirements. The APA provides that an agency is not required to conduct noticeandcomment rulemaking when the agency for good cause finds that notice and comment are impracticable, unnecessary or contrary to the public interest. Similarly, section 492 of the HEA provides that the Secretary is not required to conduct negotiated rulemaking for Title IV, HEA program regulations if the Secretary determines that applying that requirement is impracticable, unnecessary or contrary to the public interest within the meaning of the HEA.

Although the regulations implementing CCRAA are subject to the APA's noticeandcomment and the HEA's negotiated rulemaking requirements, the Secretary has determined that it is unnecessary to conduct negotiated rulemaking or noticeandcomment rulemaking on these regulations. These amendments simply modify the Department's regulations to reflect statutory changes made by the CCRAA, and these statutory changes are either already effective or will be effective within a short period of time. The Secretary does not have discretion in whether or how to implement these changes. Accordingly, negotiated rulemaking and noticeandcomment rulemaking are unnecessary.

There are no significant differences between the NPRM and these final regulations resulting from public comments.

Implementation Date of These Regulations

Section 482(c) of the HEA requires that regulations affecting programs under Title IV of the HEA be published in final form by November 1 prior to the start of the award year (July 1) to which they apply. However, that section also permits the Secretary to designate any regulation as one that an entity subject to the regulation may choose to implement earlier and the conditions under which the entity may implement the provisions early.

Consistent with the intent of this regulatory effort to strengthen and improve the administration of the loan programs authorized under Title IV of the HEA, the Secretary is using the authority granted her under section 482(c) to designate certain provisions of the regulations, identified in the following paragraph, for early implementation at the discretion of each institution, lender, guaranty agency, or servicer, as appropriate.

In accordance with the authority provided by section 482(c) of the HEA, the Secretary has determined that for some provisions there are conditions that must be met in order for an institution, lender, guaranty agency, or servicer, as appropriate, to implement
[[Page 61962]]
those provisions early. The provisions subject to early implementation and the conditions are

Provision: Sections 674.38, 682.210, and 685.204 that simplify the deferment granting process and allow a borrower's representative to request a military service deferment or an Armed Forces deferment.

Condition: None.

Provision: Sections 674.61, 682.402, and 685.212 that allow the use of an accurate and complete photocopy of the original or certified copy of the borrower's death certificate to support the discharge of a Title IV loan due to death.

Condition: None.

Provision: Sections 682.603, 682.604, 685.301, and 685.304 that require entrance counseling requirements and modify exit counseling for graduate or professional student PLUS borrowers.

Condition: None.

Provision: Section 674.45 that limits the amount of collection costs a school may assess against a Perkins Loan borrower.

Condition: None.

Provision: Section 682.202 that limits the frequency of capitalization on Federal Consolidation loans to quarterly, except that a lender may only capitalize unpaid interest that accrues during an in school deferment at the expiration of the deferment.

Condition: None.

Provision: Sections 682.208 and 682.211, which allow a lender to suspend credit bureau reporting for 120 days and grant borrowers a 120 day forbearance on a loan while the lender investigates a false certification as a result of an alleged identity theft.

Condition: None.

Analysis of Comments and Changes

In response to the Secretary's invitation in the NPRM published on June 12, 2007, 241 parties submitted comments on the proposed regulations. An analysis of the comments and the changes in the regulations since publication of the NPRM and as a result of public comment follows.

We group major issues according to subject, with appropriate sections of the regulations referenced in parentheses. We discuss other substantive issues under the sections of the regulations to which they pertain. Generally, we do not address technical and other minor changesand suggested changes the law does not authorize the Secretary to make. We also do not address comments pertaining to issues that were not within the scope of the NPRM.
Simplification of Deferment Process (Sec. 674.38, 682.210, and 685.204)

Comments: Commenters were generally supportive of our proposal to simplify the deferment process. Some commenters, however, had suggestions for modifications.

The proposed regulations would allow a borrower's representative to request a military service or Armed Forces deferment on behalf of the borrower. Some commenters recommended that we define ``borrower's representative'' for purposes of a military service or Armed Forces deferment. However, several other commenters did not think it was necessary to define ``borrower's representative.''

One commenter recommended that the Department revise the regulations to require (rather than just allow) lenders to grant military service deferments to eligible borrowers based upon a request from the borrower's representative.

With regard to the simplified deferment granting procedures, some commenters recommended that we require, rather than allow, lenders to grant deferments under the proposed procedures.

One commenter noted that interest does not accrue on subsidized FFEL or Direct Loans, or on Perkins Loans, during deferment periods and recommended that borrowers with these types of loans not be required to make an initial deferment request.

One commenter recommended that the notification of a deferment to a borrower of unsubsidized loans include information on the cost of the deferment.

One commenter recommended that we adopt a comparable simplified forbearance process for schools that participate in the Perkins Loan Program. This commenter felt that Perkins Loan schools should be able to grant forbearances based on a forbearance granted on a borrower's FFEL or Direct Loan. This commenter also requested that we allow borrowers in the Perkins Loan Program to verbally request a forbearance on their loans.

Several commenters recommended that we modify the regulations to permit a lender to grant a deferment ``during'' the same time period as a deferment granted by another lender. This would allow the deferment dates of a deferment granted by one lender to be part of the deferment period granted by another lender. The commenter noted that the dates of the deferment periods may not be exactly the same based on the status of the loans held by each of the lenders and the applicability of the deferments to the separate loans.

Discussion: The Department agrees with the commenters who recommended that we not define the term ``borrower's representative'' for purposes of a military service or Armed Forces deferment. A borrower's representative would be a member of the borrower's family, or another reliable source. We do not think it is necessary to regulate a specific definition of the term ``borrower's representative.'' We believe allowing flexibility in this regard will be especially helpful to borrowers called to active duty and stationed overseas in areas of conflict. Defining ``borrower's representative'' could unnecessarily limit access to this benefit for those most deserving of it. Commenters also overwhelmingly supported our decision not to define the term ``borrower's representative.''

We also agree with the recommendation that lenders should be required to accept a military service or Armed Forces deferment request from a borrower's representative. We believe that the proposed regulations would require lenders to accept such deferment requests and we have not changed that language.

However, we believe the simplified process that applies to other types of deferments should be optional for lenders. While many lenders may welcome the simplified deferment requirements as a convenience, other lenders may prefer to grant deferments based on their own review of a borrower's deferment documentation. We intend that these amended regulations will provide lenders with flexibility in structuring their processes for granting deferment requests; we do not want to unnecessarily limit their flexibility.

We disagree with the suggestion that lenders be allowed to grant deferments to borrowers with subsidized loans or Perkins Loans without a request from the borrower. We believe that the borrower who is ultimately liable for the loan should be responsible for deciding whether to request a deferment.

We disagree with the recommendation that schools participating in the Perkins Loan Program be allowed to grant forbearances based on forbearances granted on the borrower's FFEL Program loans. The mandatory forbearance requirements in the FFEL Program differ from the forbearance requirements in the Perkins Loan Program. Additionally, given that Perkins schools have wide flexibility in granting forbearances in the Perkins Loan Program, the Department sees no value in allowing schools to base Perkins forbearances on
[[Page 61963]]

forbearances granted in the FFEL Program.

We also disagree with the recommendation that we allow deferments to be granted ``during'' the same time period as another deferment under the simplified procedures. If the applicability of the deferment and the status of the separate loans is not the same, the simplified deferment process cannot be used because the loan holder would need to obtain separate documentation verifying the eligibility of the borrower based on different dates.

Changes: None.
Accurate and Complete Copy of a Death Certificate (Sec. Sec. 674.61, 682.402 and 685.212)

Comments: Many commenters supported the proposed changes in Sec. Sec. 674.61, 682.402, and 685.212 to allow loan holders to use an accurate and complete photocopy of a death certificate to discharge a Title IV loan due to the death of a borrower. The commenters agreed that this approach will reduce the cost of securing additional original or certified copies of a death certificate for the surviving family members and decrease burden for loan holders.

Several commenters suggested that the language in Sec. Sec. 674.61, 682.402, and 685.212 be revised to allow a loan holder to use other data sources to grant a loan discharge based on the death of the borrower, such as official court documents, the National Student Loan Data System (NSLDS), or the Social Security Administration's (SSA's) Death Master File. Two commenters suggested that the Department allow loan holders to use NSLDS to ``look back'' and discharge loans for a deceased borrower that were not included in an original discharge due to the death of the borrower.

Discussion: During the negotiations concerning these regulations, some nonFederal negotiators asked the Department to expand the types of documentation that could be used to support a request for a discharge based on the death of the borrower. Specifically, these negotiators asked that they be allowed to base discharges on documentation from NSLDS, SSA's Master Death file or court documents. We declined to adopt these proposals in order to guard against fraud and abuse in the discharge process. The SSA has publicly acknowledged that its Master Death file contains inaccuracies. For that reason, we do not consider the file to be appropriate for use in granting a death discharge and continue to believe that we should not expand the types of documentation for program integrity reasons.

The Department agrees that using NSLDS to identify the loans of a deceased borrower that were not included in a discharge based on the death of the borrower is worth exploring; however, for program integrity reasons we do not agree that NSLDS information alone should be the basis for discharging loans that were not included in the original discharge. The Department will give further consideration to the commenters' suggestion but declines to adopt the suggestion in these final regulations.

Change: None.

Comments: While supporting the Department's efforts to decrease the burden on families applying for a discharge, one commenter expressed concern that fraudulent photocopies would be used to secure a discharge based on the death of the borrower, thus threatening the integrity of the Title IV loan programs. Another commenter recommended that the Secretary conduct a study of how the process for granting requests for discharges based on the death of the borrower will work before issuing final regulations allowing use of a photocopy.

Discussion: We appreciate the commenter's concern about the possible use of fraudulent photocopies of death certificates and will closely monitor the use of this documentation. We do not believe a study is necessary at this time. An official death certificate is very difficult to alter and we expect loan holders to be vigilant when using a photocopy as the basis for a death discharge. To ensure the integrity of the Title IV loan programs, the granting of a discharge of a Title IV loan based on the accurate and complete photocopy of an original or certified copy of the original death certificate is still at the discretion of lenders and the Secretary.

Change: None.
Total and Permanent Disability Discharge (Sec. Sec. 674.61, 682.402, and 685.213)

Comment: Many commenters supported our proposals to restructure the regulations in Sec. Sec. 674.61, 682.402, and 685.213 to clarify the eligibility requirements a borrower must meet to receive a total and permanent disability loan discharge and to provide for a similar process across the three loan programs. Several commenters also supported the requirement for a threeyear conditional discharge period beginning on the date the Secretary makes an initial determination that the borrower is totally and permanently disabled.

Discussion: We appreciate the commenters' support. Upon further internal review, we believe that the Perkins Loan Program regulations could be clearer with respect to the information that an institution must provide to a borrower upon receipt of the borrower's discharge application.

Changes: The Department has made changes to Sec. 674.61(b)(2) of the Perkins Loan Program regulations to provide a more detailed description of the information that must be provided to a borrower upon the institution's receipt of an application for a discharge.

Comment: Several commenters supported the proposal in Sec. Sec. 674.61(b)(2)(i), 682.402(c)(2), and 685.213(b)(1) requiring a borrower seeking a total and permanent disability discharge to submit the completed application within 90 days of the date the physician certifies the application, thus ensuring that the loan holder has timely and accurate information on which to base a preliminary determination about the borrower's eligibility for the discharge. However, other commenters believed that the 90day time limit would be insufficient for a borrower who may be incapable of managing his or her affairs or unable to put together the paperwork necessary to submit the application. The commenters also stated that the proposed time limit would not accommodate delays in the process that are out of the borrower's control. The commenters suggested that the Secretary make exceptions to the 90day time limit to accommodate extenuating circumstances so that borrowers will not be required to obtain a new physician certification if the borrower misses the 90day time limit. One commenter suggested that we adopt a 180day time limit for submission of the discharge application.

Discussion: The Department continues to believe that the requirement in Sec. Sec. 674.61(b)(2)(i), 682.402(c)(2), and 685.213(b)(1) that borrowers submit the completed application for a total and permanent disability discharge to the loan holder within 90 days of the date the physician certifies the application is appropriate and reasonable. Allowing exceptions based on extenuating circumstances or allowing a 180day time limit would not ensure that the Secretary has accurate and timely information on which to base her determination on the borrower's application. Allowing exceptions or a longer time limit would also open up the possibility that a borrower might inadvertently take action that would disqualify the borrower for a final discharge.

Changes: None.

[[Page 61964]]

Comment: Several commenters noted that the proposed regulations do not provide for a 60day administrative forbearance that is provided to a borrower under the current FFEL regulations for completion and submission of the discharge application form. The commenters were concerned that the omission of the forbearance would increase delinquency on borrower accounts and penalize the borrower. One commenter recommended that we require lenders to suspend collection activity and provide a forbearance to a borrower who is attempting to complete a discharge application as well as during any period while the application is pending.

Discussion: Section 682.402(c)(5) of the proposed regulations allows a lender to grant a borrower a forbearance of payment of both principal and interest if the lender does not receive the physician's certification of total and permanent disability within 60 days of the receipt of the physician's letter requesting additional time to complete and certify the borrower's discharge application. Under Sec. 674.33(d)(5) of the Perkins Loan Program regulations, an institution is required to forbear payment on a loan for any acceptable reason. In the Direct Loan Program, Sec. 685.205(b)(5) specifically allows the Secretary to grant a borrower an administrative forbearance for the period of time it takes the borrower to submit appropriate documentation indicating that the borrower has become totally and permanently disabled. Given that these provisions provide a borrower with significant access to forbearance while obtaining a physician's certification and completing the discharge application, the Department believes that requiring the cessation of collection activity is unnecessary until the loan holder actually receives the discharge application.

Changes: None.

Comment: Several commenters stated that we should continue our current practice of using the date the borrower became totally and permanently disabled instead of the date the physician certifies the borrower's disability on the application as we proposed in Sec. Sec. 674.61(b)(3)(ii), 682.402(c)(3)(ii), and 685.213(c)(2) as the date to establish the borrower's eligibility for a discharge. The commenters claimed that using the date the physician certifies the application as the date the borrower became totally and permanently disabled is arbitrary and contradicts statutory intent that disabled borrowers receive immediate relief as of the date the borrower becomes totally and permanently disabled.

Several commenters stated that many borrowers do not realize they have the ability to obtain a discharge of their student loans and as a result do not apply for a total and permanent disability discharge until several years after becoming disabled. These commenters expressed concern that using the date the physician certifies the borrower's application as the disability date combined with a prospective conditional discharge period would subject these borrowers to a long delay in receiving the discharge.

One commenter stated that, in the FFEL Program, using a date identified by a physician as the borrower's disability date ensures that only one date of disability appears on all applications and forms received by the Secretary when the borrower has multiple loans. The commenter believes that under the proposed changes to the disability discharge process, the start date of the threeyear conditional discharge period for a borrower who has multiple loans may vary for each loan because loans can be assigned to the Secretary at different times in the discharge process based on when the borrower submits documentation to each lender when the lender files the claim with the guarantor, and when the guarantor reviews and pays the claim.

Several commenters questioned the Department's contention that certifying physicians rely solely on a borrower's statements in determining the borrower's date of disability and that there may not be strong medical evidence for using a different date to establish eligibility for Federal benefits. The commenters did not believe that it was appropriate for the Department to assume that a physician's diagnostic methodology is flawed.

Discussion: Sections 437(a) and 464(c)(1)(F) of the HEA provide for the discharge of a borrower's Title IV loans if the borrower becomes totally and permanently disabled as determined in accordance with regulations of the Secretary. As discussed in the preamble to the NPRM, the Department proposed these regulatory changes to eliminate the possibility that a final discharge would be made immediately upon assignment of the account to the Department. We believe this result is inconsistent with the intent of these regulations, which is to conform the discharge requirements to those of other Federal programs that only provide for Federal benefits after appropriate monitoring of the applicant's condition.

The Department believes that borrowers are sufficiently informed about the availability of a total and permanent disability discharge. The promissory notes used in the Title IV loan programs notify borrowers of the possibility to have the loan discharged if the borrower becomes totally and permanently disabled. Information on the discharge is also available on the Department's Web site and in numerous Department publications as well as in information from other program participants. Although a borrower may experience a delay before receiving a total and permanent disability discharge under these regulations, we wish to emphasize again our belief that the provision of Federal benefits should be made only after there is sufficient monitoring of the applicant's condition.

We do not agree that using a date identified by a physician as the borrower's disability date instead of the date the physician certifies the borrower's disability on the discharge application means that a borrower with multiple loans assigned to the Department has only one date of disability. The Department addresses this and similar issues frequently under the current total and permanent disability discharge process and resolves discrepancies in disability dates on assigned loans by consulting with the physician that certified the borrower's application. The Department expects to continue this approach to resolve discrepancies under the new process and does not believe the regulations need to specifically address issues related to processing an application.

Lastly, the Department does not agree that the concern we expressed in the NPRM that there may not be strong medical evidence to support using the borrower's disability date assumes a flawed diagnostic methodology on the part of the certifying physician. As we stated in the preamble to the NPRM, we believe that the best date to use as the eligibility date is the date the physician certified the application because that process requires the physician to review the borrower's condition at that time, rather than speculate about the borrower's condition in the past.

Changes: None.

Comment: Several commenters disagreed with the Secretary's opinion that a threeyear prospective conditional discharge period would help prevent fraud and abuse in the Title IV loan programs by allowing the Secretary to monitor a borrower's status before granting a discharge. The commenters stated that whether the conditional discharge period is prospective or retroactive is irrelevant as long as the Secretary has access to a physician's
[[Page 61965]]
certification confirming that the borrower meets the eligibility requirements for a disability discharge.

Several commenters also disagreed with the Department's statement in the preamble to the NPRM that there have been instances when borrowers have received otherwise disqualifying Title IV loans and earnings in excess of allowable levels after the date of the borrower's disability discharge application but also after the date of the borrower's retroactive final discharge. The commenters cited an analysis of a sample of total and permanent disability cases that they claimed did not support the Secretary's view.

Several commenters acknowledged the need to protect the integrity of the Title IV programs in regard to disability discharges and stated that reliance on a single physician's certification or determination of permanent disability may encourage fraud and abuse in the discharge process.

Discussion: In a Final Audit Report published in November 2005, the Department's Inspector General concluded that the current, threeyear conditional discharge period was ineffective for ensuring that a borrower is totally and permanently disabled because it does not always allow the Department to examine the borrower's current earnings and loan information. As a result, a borrower who is not currently disabled could receive a disability discharge even though the borrower has received current disqualifying income or loans. The Inspector General's Audit Report noted that approximately 54 percent of the borrowers who received disability discharges applied for the discharge more than three years after the disability. As a result, for the discharges approved by the Department from July 1, 2002, through June 30, 2004, approximately 54 percent (2,593 borrowers) were based on a threeyear period during which there was no examination of the borrower's current income. The Inspector General examined current income information that was available for a limited number of these borrowers who had submitted a Free Application for Federal Student Aid (FAFSA) and found that a number of borrowers who claimed to be totally and permanently disabled also reported current income over the limit for a disability discharge. As a result the Inspector General recommended that the Department revise the regulations to ensure that current income and Title IV loan information is considered when determining whether a borrower is totally and permanently disabled.

The proposed regulations address the Inspector General's concerns and we believe they will discourage fraud and abuse in the disability discharge process. To further ensure against the possibility of fraud and abuse, we have added a provision to the Perkins, FFEL and Direct Loan Program regulations specifically reflecting the Secretary's authority to require a borrower to submit additional medical evidence if the Secretary determines that the borrower's application does not conclusively prove that the borrower is disabled. As part of this review, the Secretary may arrange for an additional review of the borrower's condition by an independent physician at no expense to the applicant.

Changes: We have amended Sec. Sec. 674.61(b)(4), 682.402(c)(4), and 685.213(d) to provide that the Secretary reserves the right to require additional medical evidence of a borrower's total and permanent and disability as well as an additional review of the borrower's condition by an independent physician at the Secretary's expense.

Comment: Many commenters disagreed with the Department's proposal in Sec. Sec. 674.61(b)(5), 682.402(c)(4)(iii), and 685.213(d)(3)(ii) that only payments made on the loan after the date the physician certifies the borrower's total and permanent disability discharge application would be returned to the borrower. The commenters claimed this proposal would harm borrowers who do not obtain a timely certification of disability or who continue to make payments to keep from defaulting or becoming delinquent on their loans. One commenter recommended that repayments be refunded back to the date certified by the physician even if a prospective conditional discharge period is required.

One commenter recommended that no payments previously made on a loan be returned to a borrower if the borrower receives a final discharge based on a total and permanent disability.

One commenter requested that we clarify to whom the Secretary returns payments after a final determination of the borrower's total and permanent disability is made in Sec. 674.61(b)(5)(iii).

Discussion: As stated in the preamble to the NPRM, the Department proposed this change to be consistent with the decision to rely on the date the physician certifies the borrower's disability on the application and to maintain program integrity in the administration of the discharge process. Under these regulations, the borrower's disability date is the date the physician certifies the borrower's discharge application. In this situation, there is no basis for returning payments made by the borrower, or on the borrower's behalf, before that date. However, it is appropriate to return any payments made by or on behalf of the borrower after that date.

Lastly, the Secretary returns any payments to the individual who made the payments after a final determination of the borrower's total and permanent disability is made. We agree that the regulations should reflect this fact.

Changes: Sections 674.61(b)(5)(iii), 682.402(c)(4)(iii), and 685.213(d)(3)(ii) have been changed to reflect that any payments made after the date that the physician certified the borrower's application for a disability discharge will be sent to the person who made the payment after the final discharge is issued.

Comment: Several commenters felt that the prospective threeyear conditional discharge period should begin on the date the physician certifies the borrower's total and permanent disability discharge application rather than on the date the Secretary makes an initial determination that the borrower is totally and permanently disabled. The commenters stated that using the date the Secretary makes the initial determination would be unfair to borrowers. The commenters also believed that using the date the Secretary initially determines that a borrower is disabled weakens the Secretary's incentive to make expeditious decisions on disability discharge applications and increases the likelihood that a borrower might inadvertently take an action that would disqualify him or her for a final discharge. One commenter recommended that the final regulations set a time limit for the Department to make a determination of a borrower's initial eligibility for a disability discharge.

Discussion: The Department has considered the comments and has decided that beginning the prospective threeyear conditional discharge period on the date the physician certifies the borrower's total and permanent disability discharge application rather than on the date the Secretary makes an initial determination that the borrower is totally and permanently disabled is appropriate and will not increase the opportunity for fraud in the disability discharge process.

Changes: We have revised Sec. Sec. 674.61(b)(3)(i), 682.402(c)(3)(i), and 685.213(c)(2) to provide that the threeyear conditional discharge period begins on the date the physician certifies the
[[Page 61966]]
borrower's total and permanent disability discharge application.

Comment: Several commenters requested that we apply the same eligibility standards that apply during the conditional discharge period (which prohibit the receipt of any additional Title IV loans and allow a borrower to earn no more than 100 percent of the poverty line for a family of two, as determined in accordance with the Community Service Block Grant Act) to the period between the date the borrower obtains a physician's certification and the date the Secretary makes her initial determination that the borrower is totally and permanently disabled. The commenters believed that applying different eligibility requirements at different stages in the process would confuse borrowers and jeopardize their ability to qualify for a discharge.

Discussion: The Department has considered the comments and agrees that applying the same eligibility standards beginning on the date the borrower obtains the physician's certification on the total and permanent disability discharge application and continuing those standards throughout the prospective threeyear conditional discharge would reduce the complexity of the process without creating an opportunity for fraud.

Changes: We have revised Sec. Sec. 674.61(b)(4)(i), 682.402(c)(4)(i), and 685.213(d)(1) to provide that a borrower may not receive any Title IV loans or earn more than 100 percent of the poverty line for a family of two, as determined in accordance with the Community Service Block Grant Act, beginning on the date the physician certifies the borrower's discharge application and throughout the prospective threeyear conditional discharge period.

Comment: One commenter requested that the proposed regulations be clarified to define the term ``new Title IV loan'' to exclude subsequent disbursements of a prior loan.

Discussion: The Department does not believe that such a change is necessary. The regulations in Sec. Sec. 674.61(b)(2)(iv)(C)(2) and (3), 682.402(c)(4)(i)(B) and (C), and 685.213(b)(2)(ii)(A) and (B) already differentiate between new loans and subsequent disbursements of prior loans.

Changes: None.

Comment: One commenter requested that the effective dates and trigger dates in the proposed regulations be carefully evaluated so that borrowers who are in the process of having discharge forms certified are not subject to the new requirements. Another commenter requested that the effective date of any new regulations governing the disability discharge process be based on the approval date of a new Federal form to eliminate processing confusion and inadvertent delays for applicants.

Discussion: The Department anticipates that both the new total and permanent disability discharge applications and the final regulations that govern the process will be effective on July 1, 2008, for borrowers who apply for a discharge on or after that date. Borrowers who are in the process of having discharge forms certified as of that date will not be subject to the new regulations.

Changes: None.

Comment: One commenter suggested the Secretary return Perkins Loan accounts to the school that assigned them if the Secretary determines that the borrower is not totally and permanently disabled. The commenter stated that if such accounts were returned to the school, the school's Perkins Loan revolving fund would benefit from any repayments made when the school resumes collection.

Discussion: The current assignment process in Sec. 674.50 of the Perkins Loan Program regulations requires that, upon accepting assignment of a loan, the Secretary acquire all rights, title, and interest of the institution in that loan. Returning an assigned Perkins Loan account to the school if the Secretary determines that a borrower is not totally and permanently disabled would add administrative burden to the process and is inconsistent with current regulatory requirements in Sec. 674.50(f)(1).

Changes: None.

Comment: One commenter suggested that if the Secretary makes an initial determination that the borrower's disability is not total and permanent, the borrower should not only resume repayment but should also be required to repay all amounts that would have been due during the cessation of collection on the loan while the application was being processed by the loan holder and the Secretary.

Discussion: The Department believes that to require a borrower to repay all amounts that would have been due during the cessation of collection on the loan while the application is being processed would unnecessarily discourage borrowers who might qualify for a discharge from applying.

Changes: None.

Comment: One commenter felt that the Department should consider disability determinations made by other Federal agencies such as the SSA or the Veteran's Administration (VA) in determining whether borrowers are eligible for a disability discharge on their Title IV loans.

Discussion: The Department has previously considered the idea of applying the disability standards used by other Federal agencies to borrowers seeking a discharge of their Title IV loans. However, the definition of total and permanent disability used in the Department's discharge process is appropriately more demanding than that used by SSA and the VA. Those agencies use regular medical reviews of applicants over a number of years to ensure that the applicants remain eligible for benefits. In those programs, an individual loses benefits if they are no longer disabled. In contrast, the Department is providing a significant benefit to an individual on a onetime basis without any opportunity to conduct future reviews to determine if the individual is actually disabled. The Secretary believes that the process established in these regulations provides an appropriate process that will ensure that only appropriate discharges are granted.

Changes: None.
NSLDS Reporting (Sec. Sec. 674.16, 682.208, 682.401, and 682.414)

Comment: Many commenters did not agree with proposed Sec. 682.401(b)(20), which would change the timeframe in which guarantors must report certain student enrollment data to the current loan holder from 60 days to 30 days. The commenters believed that this change would not accommodate timely reporting in months that have 31 days. Other commenters stated that guarantors currently report information to NSLDS at least monthly and that changing the requirement for guarantors to report enrollment information to lenders to 30 days would not improve the timeliness of information. One commenter believed that the Secretary did not appropriately consider all the other established reporting periods and deadlines when developing this proposal, and that new NSLDS reporting requirements will unnecessarily burden schools with additional reporting.

One commenter asked how the Department intends to categorize Perkins Loan data that are reported to NSLDS under the new regulations. The commenter noted that historically schools categorized and reported Perkins Loans based on the terms and conditions of the loan and reported disbursements made under these categories as one loan made over a period of years. A school would create a new category of Perkins Loan when
[[Page 61967]]
the terms and conditions of Perkins Loans were affected by statutory changes. The commenter believed that reporting Perkins Loans as separate loans each award year would dramatically increase the number of loans reported to NSLDS and increase burden and costs associated with NSLDS reporting. The commenter noted that new NSLDS reporting criteria would increase the number of Perkins Loan account records and associated costs of reporting with no benefit to the institution or borrowers.

Three commenters stated that the language in paragraph (j) of proposed Sec. 674.16 fails to reflect the intent of Section 485B of the HEA which specifically provides that the development of NSLDS reporting timeframes be accomplished according to mutually agreeable solutions based on consultation with guaranty agencies, lenders and institutions. The commenters stated that the Department has not devoted sufficient effort to conducting a meaningful dialogue and information exchange with institutions about reporting needs for research and policy analysis purposes.

Several other commenters suggested that there should be weekly updates to NSLDS instead of the suggested 30 days and believed that guaranty agencies, servicers, students, and schools would benefit from having more accurate and timely information in NSLDS.

Discussion: The Secretary believes that the new NSLDS reporting timeframes will improve the timeliness and availability of information important to managing the student loan program. The Secretary also believes that the proposed regulatory changes, such as the simplification of the deferment granting process, will be easier and more efficiently implemented if timely and accurate information is more readily available in NSLDS.

The Department appreciates the commenters' concerns about the cost associated with increased reporting of Perkins Loans. Although the costs incurred by institutions to make the systems changes necessary to comply with new NSLDS reporting requirements are difficult to estimate, we believe that requiring institutions to report Perkins Loans on an award year basis, as FFEL and Direct Loan Program loans are reported, will increase the quality and integrity of Perkins Loan data and allow the Department to make meaningful comparisons between the Title IV loan programs for research and budgeting purposes. We also believe that reporting Perkins Loans on an award year basis will provide borrowers with a more accurate picture of their total indebtedness.

The Department regularly consults with program participants in setting NSLDS reporting requirements in established workgroups that meet several times a year. We believe the regulations reflect this consultative process.

With regard to the commenter who suggested that there should be weekly updates to NSLDS instead of the suggested 30day timeframe, entities that wish to report to NSLDS on a weekly basis are able to so under current protocols. We decline to require weekly reporting requirements for all entities at this time, however, because we believe that small institutions would find such a standard difficult to manage.

The Secretary agrees with commenters that the 30day reporting timeframe does not leave guarantors adequate time to report data to the current loan holder in months that have 31 days.

Changes: We have changed the reporting timeframe in Sec. 682.401(b)(20) to 35 days.
Certification of Electronic Signatures on Master Promissory Notes (MPNs) Assigned to the Department (Sec. Sec. 674.19, 674.50, 682.409, and 682.414)

Comment: One commenter agreed that proper execution and retention of electronic loan records is necessary for program integrity reasons. Several other commenters stated that the proposed changes in Sec. 674.19(e)(2)(ii) requiring a school participating in the Perkins Loan Program to develop and maintain a certification of its electronic signature process were overly broad, would discourage schools from using electronic notes, and would impose burdensome new recordkeeping requirements. Other commenters stated that institutional compliance with these new requirements would be difficult unless the Department clearly defines these new requirements and provides schools with a ``safe harbor'' of minimum compliance standards for Perkins Loans already signed electronically by borrowers. The commenters stated that the burden of complying with Sec. 674.50(c)(12)(i) for institutions would be difficult to justify given the few borrowers who might dispute the validity of the electronic signature at some future date.

Several commenters stated that the requirement in Sec. 674.50(c)(12)(ii)(B) that a school's certification include screen shots as they would have appeared to the borrower is impractical and unnecessary and asked that this requirement be eliminated.

Discussion: The Department believes that the requirements in Sec. 674.19(e)(2) that an institution create and maintain a certification regarding the creation and maintenance of electronically signed Perkins Loan promissory notes or MPNs in accordance with Sec. 674.50(c)(12) ensures that the school and the Department have the evidence to enforce an assigned loan if a challenge or factual dispute arises in connection with the validity of the borrower's electronic signature. Schools are required to take legal action to collect on a defaulted Perkins Loan in accordance with Sec. 674.46 of the Perkins Loan Program regulations. If a legal challenge to the validity of an electronic signature should arise in the course of litigating a defaulted Perkins Loan, a school will be in a much stronger legal position to prove that the borrower signed the loan and benefited from the proceeds of the loan. The need to ensure the integrity of the Perkins Loan Program justifies establishing electronic signature safeguards. Perkins Loan schools should generally not be incurring new costs or burden related to the certification of electronic signatures on promissory notes. In July of 2001, the Department published its Standards for Electronic Signature in Electronic Student Loan Transactions (Standards) to facilitate the development of electronic processes under the Electronic Signatures in Global and National Commerce Act (ESign Act). These Standards provided guidance to FFEL Program lenders and guaranty agencies, and to schools in their role as lenders under the Perkins Loan Program, regarding the use of electronic signatures in conducting student loan transactions, including using electronic promissory notes. At that time, we informed loan holders and institutions in the FFEL or Perkins Loan Program that if their processes for electronic signature and related records did not satisfy the Standards and the loan was held by a court to be unenforceable based on those processes, the Secretary would determine on a casebycase basis whether Federal benefits would be denied, in the case of the FFEL Program, or whether a school would be required to reimburse its Perkins Loan Fund, in the case of the Perkins Loan Program. If, as we assume, Perkins Loan holders are complying with the Standards, added burden or cost should not be an issue. The regulations in Sec. 674.50(c)(12) that describe what the certification must include are already very specific and detailed and a ``safe harbor'' is unnecessary. The only provision of these regulations that is not specific is
[[Page 61968]]
Sec. 674.50(c)(12)(ii)(F), which requires the certification to include ``all other documentation and technical evidence requested by the Secretary to support the validity or the authenticity of the electronically signed promissory note.'' This provision is not intended to be overly burdensome on schools. This provision is intended to cover whatever documentation a school has that is not already listed in Sec. 674.50(c)(12)(ii)(A) through (E).

Lastly, the Department does not agree with the commenters' suggestion that inclusion of screen shots as they would have appeared to the borrower is impractical or unnecessary. The inclusion of screen shots in the certification is a critical part of the process to ensure that the promissory note is a valid, legal document, that the terms and conditions of the loan were properly represented to the borrower, and that the borrower was fully aware of the fact he or she was receiving a loan.

Changes: None.

Comment: One commenter suggested that the Department require each institution that participates in the Perkins Loan Program to designate an ``ESign Contact Person'' on its FISAP submission to enable institutions to meet documentation requests from the Secretary in a timely manner.

Discussion: The Department believes this suggestion has merit and will consider implementing this proposal administratively. However, no change to the regulations is necessary.

Changes: None.

Comment: Many commenters stated that the 10business day deadline required by Sec. Sec. 674.50(c)(12)(iii) and 682.414(a)(6)(iii) within which Perkins Loan and FFEL loan holders must respond to a request for evidence that may be needed to resolve a dispute with a borrower on a loan assigned from the Secretary was too short. One commenter recommended a 10business day standard only if the request relates to pending litigation and an alternative, 30day standard if the request is not related to litigation. One commenter recommended delaying implementation of the 10business day deadline by one year to give institutions the opportunity to put in place the systems, policies, and capability to comply and produce the requested documentation. One commenter suggested adopting a 15business day deadline with an option to appeal if the institution faces a special situation. Another commenter suggested a 25business day deadline. One commenter requested that the Secretary withdraw this proposal completely.

Discussion: The Department does not believe that a 10business day deadline to respond to requests from the Secretary for evidence needed to resolve a dispute involving an electronicallysigned loan that has been assigned to the Secretary is burdensome. The Department believes that 10 business days provides sufficient time for loan holders. The Secretary believes that a timely response to a request for information is essential to proper enforcement of a promissory note, especially when a borrower is contesting the validity of an electronic signature and that challenge involves court proceedings or courtimposed deadlines. Finally, we believe that delaying implementation of this deadline or not imposing any deadline would threaten the integrity of the FFEL and Perkins Loan Programs.

Changes: None.

Comment: Several commenters expressed concern regarding the provision in proposed Sec. 674.50(c)(12)(i)(B), under which the Department would require a Perkins Loan holder to provide testimony to ensure the admission of electronic records in a legal proceeding. These commenters requested that the Department clarify that the institution will not be responsible for any expenses related to this requirement.

Discussion: Section 489 of the HEA and 34 CFR Sec. 673.7 of the General Provisions regulations for the Federal Perkins Loan, Federal Work Study, and Federal Supplemental Educational Opportunity Grant Programs provide for an administrative cost allowance that an institution may use to offset its cost of administering the campus based programs, including the costs related to the provision of testimony.

Changes: None.

Comment: One commenter requested that the Department revise Sec. 682.409(c)(4)(viii), which would require a guaranty agency to provide the Secretary with the name and location of the entity in possession of an original, electronically signed MPN that has been assigned to the Department. The commenter asked that we change this provision to give guaranty agencies the option of providing the Secretary the name and location of the entity that created the original MPN or promissory note in response to the Secretary's request. The commenter believed this approach would provide flexibility for loan holders to continue to track the entity that created the original electronically signed MPN, while providing flexibility for new technological changes that may allow subsequent holders to obtain possession of an original electronic MPN record. This commenter also recommended a change in Sec. 682.414(a)(6)(i) to allow the ``entity'' that created or the ``entity in possession'' of an original electronically signed promissory note respond to a request for information from the Secretary rather than the guaranty agency or lender that created the note for the same reason.

Discussion: We disagree with the commenter that allowing a guaranty agency the option of providing the Secretary with the name and location of the entity that created the original MPN or promissory note meets the Department's needs. We also disagree that the ``entity'' that created or that is in possession of the original electronically signed promissory note would be the more appropriate party to respond to a request for information from the Department. If the Department needs the original, electronically signed MPN, it should be a simple matter for a guaranty agency to provide the name and location of the entity that possesses the document. Moreover, the lender and guaranty agency are the program participants that have the legal obligation to maintain program records and cooperate with the Secretary to enforce loan obligations.

Changes: None.

Comment: One commenter supported the provisions in Sec. Sec. 674.19(e)(4)(ii) and 682.414(a)(5)(iv) requiring loan holders to retain an original of an electronicallysigned MPN for three years until all the loans on the MPN are satisfied but requested clarification in the regulations as to the meaning of the term ``satisfied.''

Discussion: The FFEL, Perkins and Direct Loan Program regulations already define when a loan is ``satisfied.'' In all three programs, a loan is ``satisfied'' if the loan has been canceled, repaid in full or discharged in full. In the Perkins Loan Program, a loan is also considered ``satisfied'' if the loan has been repaid in full in accordance with an institution's authority to compromise on the repayment of a defaulted loan in accordance with Sec. 674.33(e) or the institution writes off the loan in accordance with Sec. 674.47(h). Accordingly, we do not believe any further clarification in the regulations is needed.

Changes: None.

Comment: One commenter stated that the proposed regulations requiring a FFEL Program loan holder to retain an original of an electronicallysigned MPN for three years after all the loans are satisfied is unmanageable. This commenter recommended that FFEL Program lenders be required to submit
[[Page 61969]]
electronic signature certifications and authentication records to the guarantor at the time a claim is submitted. The commenter believed that this approach would ensure that certification and authentication records are available and submitted consistently and promptly with each loan the guarantor assigns to the Department.

Discussion: The Department carefully considered this approach during negotiated rulemaking, but after considering comments made during that process, we determined that, at this time, it would not be necessary to require FFEL Program lenders to submit electronic signature certifications and authentication records to the guarantor at the time a claim is submitted. Instead, consistent with our understanding of how paper notes are being handled in the student loan industry, we have adopted the framework contained in these final regulations, which puts the responsibility for managing the electronic promissory notes and ensuring their continued enforceability on the lenders and guaranty agencies that created them.

Changes: None.

Comment: One commenter recommended that the Department adopt the accessibility standards of section 101(d) of the ESign Act, which requires that electronic records ``remain accessible to all persons who are entitled to access * * * in a form that is capable of being accurately reproduced for later reference'' rather than the standard

FOR FURTHER INFORMATION CONTACT

For information related to Simplification of the Deferment Process, Loan Counseling for Graduate or Professional Student PLUS Loan Borrowers, Mandatory Assignment of Defaulted Perkins Loans, Reasonable Collection Costs, and Child or Family Service Cancellation, Brian Smith. Telephone: (202) 5027551 or via Internet: brian.smith@ed.gov.

For information related to Accurate and Complete Copy of a Death Certificate, NSLDS Reporting Requirements, Maximum Loan Period, and Frequency of Capitalization, Nikki Harris. Telephone: (202) 2197050 or via Internet: nikki.harris@ed.gov.

For information related to Total and Permanent Disability, Certification of Electronic Signatures on Master Promissory Notes (MPNs) Assigned to the Department, Record Retention Requirements on MPNs Assigned to the Department, Eligible Lender Trustees, and Loan Discharge for False Certification as a Result of Identity Theft, Gail McLarnon. Telephone: (202) 2197048 or via Internet:
gail.mclarnon@ed.gov.

For information related to Prohibited Inducements and Preferred Lender Lists, Pamela Moran. Telephone: (202) 5027732 or via Internet:
pamela.moran@ed.gov.

If you use a telecommunications device for the deaf (TDD), you may call the Federal Relay Service (FRS) at 18008778339.

Individuals with disabilities may obtain this document in an alternative format (e.g., Braille, large print, audiotape, or computer diskette) on request to any of the contact persons listed in this section.