Implementation Date of These Regulations

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

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

Analysis of Comments and Changes

The regulations in this document were developed through the use of negotiated rulemaking. Section 492 of the HEA requires that, before publishing any proposed regulations to implement programs under Title IV of the HEA, the Secretary obtain public involvement in the development of the proposed regulations. After obtaining advice and recommendations, the Secretary must conduct a negotiated rulemaking process to develop the proposed regulations. All proposed regulations must conform to agreements resulting from the negotiated rulemaking process unless the Secretary reopens that process or explains any departure from the agreements to the negotiated rulemaking participants.

These regulations were published in proposed form on August 8, 2007, in conformance with the consensus of the negotiated rulemaking committee. Under the committee's protocols, consensus meant that no member of the committee dissented from the agreedupon language. The Secretary invited comments on the proposed regulations by September 7, and in response to the Secretary's invitation, 22 parties submitted comments on the proposed regulations. An analysis of the comments and the changes in the regulations since publication of the NPRM follows.

We group major issues according to subject, with appropriate sections of the regulations referenced in parentheses. We discuss other substantive issues under the sections of the regulations to which they pertain. Generally, we do not respond to technical and other minor changesand 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 NPRM.

General Definitions (Sec. 668.2)

Comments: In general, commenters supported the proposed changes in Sec. 668.2. With regard to the definition of ``fulltime student,'' one commenter requested that the Department not increase the number of clock hours required to be considered fulltime as that would affect the amount of time a student must be enrolled to be considered part time.

Discussion: These regulations do not include any provisions that increase the number of clock hours required for fulltime students. The Department originally considered changing the number of clock hours required for a student to be considered a fulltime student, but withdrew this proposal during the negotiated rulemaking sessions because this change could unfavorably affect parttime clock hour students.

Change: None.

Comments: We received comments from two institutions regarding the definitions of ``graduate or professional student'' and ``undergraduate student'' and the clarification of when a student is considered an undergraduate in a dual degree program. One of the commenters noted that this clarification is welcomed in light of the fact that ``there has been considerable growth in such programs, often comingling undergraduate coursework, making it difficult to determine exact eligibility for Title IV aid. By considering such students to be undergraduates for the first three years of the academic program, this confusion will be greatly reduced.'' The other commenter agreed with this regulatory change but only if institutions are allowed to use their own definition of academic year when determining the ``third year.''

Discussion: The term ``academic year'' is defined in section 481 of the HEA. Generally, institutions that participate in the Title IV, HEA programs and measure their program length in credit hours are required to define their academic year as at least 30 weeks of instructional time during which a fulltime student in an undergraduate program is expected to complete at least 24 semester or trimester credit hours or 36 quarter credit hours of study. Institutions that participate in the Title IV, HEA programs and measure their program length in clock hours are required to define their academic year as at least 26 weeks of instructional time during which a fulltime student in an undergraduate program is expected to complete at least 900 clock hours. However, the statutory purpose behind the definition of an academic year is to determine the minimum period of time for which we will pay a student an academic year's worth of financial aid. Determining ``grade level'' for the purpose of categorizing a student as either a graduate or professional student or an undergraduate student is not related to the issue the HEA addresses with the definition of an academic year. Therefore, we agree with the commenter who suggested that an institution can, without reference to the statutory definition of an academic year, define what a year is in its programs for purposes of determining when a student is an undergraduate student or a graduate or professional student.

Change: The definition of ``graduate or professional student'' in Sec. 668.2 is amended by using the term ``year'' instead of ``academic year'' in paragraph (3). In addition, the definition of ``undergraduate student'' in Sec. 668.2 is similarly amended by using the term ``year'' instead of ``academic year'' in those places that describe the length of a course of study or a program.

Comment: We received one comment requesting the Department to consider altering the definitions for ``graduate or professional student'' and ``undergraduate student'' to reflect the language that is currently used in the Department's Federal Student Aid (FSA) Handbook for consistency and clarity. In particular, the commenter asked the Department to (1) consider adopting the definition for an
``undergraduate student'' as it appears in the handbook, (2) use the term ``program'' consistently throughout the regulations, (3) change the term ``institution of higher education'' to ``eligible institution'' since the term ``institution of higher education'' is defined in the regulations to exclude proprietary institutions, (4) drop the word ``first'' in the phrases ``first professional degree'' and ``first degree at the baccalaureate level,'' and (5) use the term ``mixeddegree programs'' rather than ``dual degree programs.''

Discussion: The definition of an ``undergraduate student'' in the FSA Handbook is ``a student who is enrolled in a program of study that usually does not exceed four (and can be up to five) academic years in length and that is designed to lead to a degree or certificate at or below the baccalaureate level.'' While this definition is correct, it does not address certain student eligibility or program specific [[Page 62016]]
requirements that are covered in the more comprehensive definition in Sec. 668.2. The definition of ``undergraduate student'' in Sec. 668.2, which contains definitions that are relevant to all of the Title IV, HEA programs, was intended to incorporate requirements from the definition of ``undergraduate student'' currently in different program regulations. However, in proposing the definition of ``undergraduate student,'' we inadvertently omitted certain provisions currently in Sec. Sec. 674.2, 675.2, and 676.2. Specifically, these sections describe an undergraduate student as a student enrolled in a course of study that usually does not exceed four years, or is enrolled in a four or five year program designed to lead to a degree. A student enrolled in a program of any longer period is considered an undergraduate student for only the first four years of that program.

The HEA refers to a student following a course of study, while institutions offer programs. A course of study refers to a student's particular academic path in a program. For example, a student's major would be considered a course of study. Program, as it appears in the HEA, refers to the overall bachelor's program, which includes not only the course of study but also any other general coursework that may be required by an institution.

We understand the commenter's concerns that the term ``institution of higher education,'' as defined in the regulations, appears to exclude proprietary institutions. Additionally, this term is not used in the definition of undergraduate student. Therefore, to address the commenter's concerns and for consistency, we are removing the reference to an institution of higher education in the definition of graduate or professional student.

We agree with the commenter's point regarding the use of the term ``first degree at the baccalaureate level'' in paragraph (1) of the definition for ``undergraduate student'' and the term ``first professional degree.'' Because a student can be considered an undergraduate student when taking courses below the baccalaureate level even after receiving a bachelor's degree for purposes of the FFEL, Direct Loan, and Perkins Loan programs, the term ``first degree at the baccalaureate level'' in paragraph (1) will be amended. It is not necessary to specify whether a professional degree is a first professional degree for Title IV, HEA program purposes and, therefore, we will amend the definitions for ``graduate or professional student'' and ``undergraduate student.'' We will also amend the term ``first professional degree'' to ``professional degree'' to clarify the Department's intention when using this term in the regulations.

Finally, we believe the term ``dual degree programs'' is commonly used in the academic community. It is more descriptive of the types of programs to which the definitions apply and is less confusing than the term ``mixed degree programs.''

Changes: Section 668.2 is amended by removing the word ``first'' in paragraphs (1), (2), and (3) of the definition for an ``undergraduate student'' and from paragraph (2) of the definition for ``graduate or professional student.'' Section 668.2 is further amended by removing the term ``institution of higher education'' from the definition of a ``graduate or professional student'' and by removing the word ``first'' from the term ``first professional degree.'' In addition, the definition of ``undergraduate student'' is amended to reflect the omitted provisions in Sec. Sec. 674.2, 675.2, and 676.2.
Payment Periods (Sec. Sec. 668.4, 668.22, 668.164, 682.200, 682.604, and 685.301)

Comments: One commenter believed that the regulatory provisions allowing an institution to disburse Title IV grant funds at such times and in such installments in each payment period as the institution determines best meets the student's needs should also apply to the disbursement of FFEL and Direct Loan funds. Along these lines, the commenter asked the Department to clarify that an institution may delay the disbursement of an FFEL or Direct Loan until after the 60 percent point in the payment period, or pay in two substantially equal installments that coincide with the beginning dates of two consecutive modules that the student is scheduled to attend within a standard term.

Discussion: Nothing in the HEA or the regulations prohibits an institution from paying an FFEL or Direct Loan in installments during a payment period, provided that the disbursements are substantially equal and that no more than half of the loan amount for the period of enrollment is disbursed to the borrower prior to the midpoint of the period of enrollment. However, for an FFEL loan, an institution should confer with the lender or guaranty agency to confirm that they would permit such disbursements. For a Direct Loan, an institution may make such disbursements at the institution's discretion and does not need to contact the Department. The Department notes that the provisions allowing an institution to pay a student at such times and in such amounts as it determines best meet the student's needs also applies to Perkins Loan funds.

The purpose of the provisions allowing an institution to disburse Title IV funds in installments within a payment period is to give institutions the ability to apportion the payment if doing so will be in the best interest of the student. For example, if a payment period is particularly long, an institution might choose to pay in multiple installments to ensure that a student will have funds to pay rent later in the payment period. However, as a general matter, Title IV funds must be provided to students in a timely manner to best assist them in paying their educational expenses. Consequently, an institution may not delay the disbursement of funds until after the 60 percent point, for example, to avoid the administrative burden of performing a Return of Title IV Funds calculation and the requirements that go along with it, or to prevent the student from having to return funds upon withdrawal.

Change: Section 668.164(b)(1)(ii) is amended to make clear that an institution may disburse Perkins Loan funds, within each payment period, at such time and in such amounts as it determines best meets the student's needs.

Comments: One commenter asked the Department to clarify any difference between the term ``successfully completes'' as defined in the NPRM for completion of a payment period in certain types of educational programs, and the term ``successfully completed'' as used in the late disbursement provisions under Sec. 668.164(g)(4)(ii). The commenter believes that the provision for making a late disbursement, which provides that an institution may not make a second or subsequent late disbursement of FFEL or Direct Loan funds unless the student successfully completed the period of enrollment for which the loan was intended, does not require the student to have passed the coursework associated with the hours in the period of enrollment. Two commenters suggested that the Secretary define ``standard terms,'' ``nonstandard terms,'' and ``substantially equal in length'' in the General Provisions Regulations under Sec. 668.2 so that these terms would apply to all of the Title IV programs.

Discussion: The term ``successfully completes,'' or a variation of that term, has the same meaning for payment period purposes as it does for making late disbursements, i.e., the institution must consider the student to have passed the coursework associated with
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the hours in the payment period or period of enrollment.

A standard term, as specifically noted in, for example, Sec. Sec. 668.22(a)(ii)(5) and 690.63(a)(1), is a semester, trimester, or quarter. By inference, a nonstandard term is something other than that. The Department does not believe it is necessary to add definitions of ``standard terms'' and ``nonstandard terms'' in regulations that go beyond these general concepts. The only places the term ``substantially equal in length'' is used outside of the FFEL and Direct Loan regulations are where it is specifically needed in Sec. Sec. 668.4 and 668.22 of the General Provisions regulations. The Department believes it is necessary to define the term in those two sections only. Therefore, we are adding in these final regulations in Sec. 668.2 the same definition of ``substantially equal in length'' that we are adding in Sec. 668.4.

Change: Section 668.22(l) is amended to include a definition of the term ``substantially equal in length.''
Transferring to a New Program at the Same Institution (Sec. 668.4)

Comments: One commenter asked whether the proposed regulations allowing a student to be considered to remain in the same payment period when the student transfers into a second program would apply when the student transfers from a Business program to an Information Technology (IT) program at the same institution. In this case, the student is continuously enrolled, the payment periods are substantially equal in length, and the charges are the same, but the credits from the Business program that the student took in that payment period do not transfer to the IT program.

Discussion: The Department's response, based on these facts, is no. We intend that Sec. 668.4(g) will address those cases where there is very little change to a student's academic circumstances and the student is changing over to the new program in a nearly seamless manner. In the commenter's case, the coursework in the payment period the student is transferring out of would not be considered to be substantially similar to the coursework the student will be taking in the new program because none of the credits associated with that coursework transfer over to the new program. Therefore, the institution must treat the student as a withdrawal from the Business program, and calculate new payment periods for the student's enrollment in the IT program. Based on this comment, the Department believes that it would be beneficial to clarify Sec. 668.4(g).

Changes: Section 668.4(g)(3) is amended to clarify that for an institution to consider the student to remain in the same payment period the credits from the payment period the student is transferring out of must be accepted toward the new program.
Return of Title IV Funds Calculated on a Payment Period Basis (Sec. Sec. 668.4 and 668.22)

Comment: One commenter did not agree with the proposed change that would require the use of the payment period that ends later for Return of Title IV Funds calculations for a student who withdrew from a credit hour program that is measured in nonstandard terms that are not substantially equal in length, when the student received aid under both payment period definitionsone for Title IV grant and Perkins Loan funds, and one for FFEL and Direct Loan funds. The commenter noted that a student who received aid under both payment period definitions would earn a different percentage of aid than a student with the same withdrawal date who received aid under only the shorter of the two payment periods. The commenter felt that students with the same withdrawal date should always earn the same percentage of aid, irrespective of the type of programs from which the student receives aid.

Discussion: As stated in the NPRM (72 FR 44626), to simplify the Return of Title IV Funds calculation and ease administrative burden, we believe that institutions should use consistent Title IV payment periods to the extent permitted under the HEA and regulations. However, as there are two payment period definitions to take into account for nonstandard term credit hour programs with terms that are not substantially equal in length, the Department sought a solution that is as equitable as possible without being exceedingly complicated. Although, as the commenter points out, a student who received aid under both payment period definitions would earn a different percentage of aid than a student with the same withdrawal date who received aid under only the shorter of the two payment periods, we believe the approach taken in these regulations is the best solution because the use of the shorter payment period would be substantially more complicated.

Change: None.
Treatment of Title IV Grant and Loan Funds if a Recipient Does Not Begin Attendance (Sec. Sec. 668.21, 682.604, and 685.303)

Comments: Three commenters supported the proposed regulations consolidating the requirements for the treatment of Title IV funds when a student does not begin attendance. However, two other commenters felt that the proposed requirement that an institution return the amount of FFEL and Direct Loan funds paid to the institution on behalf of the student was new and did not reflect current regulations.

Two commenters suggested that regulatory language be added to reflect the statements in the preamble to the NPRM that (1) institutions would not be responsible for returning FFEL and Direct Loan funds that are disbursed directly to the student by the lender for a studyabroad program or for a student enrolled in a foreign school, and (2) a final demand letter must be issued to these students for such funds.

One commenter believed that the timeframe for an institution to return Title IV funds should be as soon as possible, but no later than 45 days after the date that the institution becomes aware that the student will not or has not begun attendance, rather than the proposed 30 days, to match the timeframe in Sec. 668.22 for an institutional return of funds to the Title IV programs when a student withdraws.

Discussion: The Department notes that although the proposed requirements in Sec. Sec. 682.604(d)(4)(ii) and 685.303(b)(3)(ii) did not specifically state that FFEL and Direct Loan funds paid to the institution on behalf of a student (i.e., parent PLUS loan funds) must be returned by the institution, the Department has previously interpreted the requirement that the institution return funds paid by the student to include parent PLUS loan funds. By including the phrase ``on behalf of'' in Sec. 668.21 we intended to reflect this longstanding interpretation in the regulations.

We agree with the commenters' suggestions to add regulatory language to address the treatment of FFEL and Direct Loan funds disbursed directly to the student by the lender for a studyabroad program or for a student enrolled in a foreign school when the student does not begin attendance.

As stated in the NPRM (72 FR 44628), the Department does not believe that an additional 15 days in the timeframe are necessary because, unlike the Return of Title IV Funds requirements in Sec. 668.22, no calculation is required to determine
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the amount of funds an institution must return.

Changes: Section 668.21(a)(2)(ii) is amended to make clear that an institution is not responsible for returning FFEL and Direct Loan funds that are disbursed directly to the student by the lender for a study abroad program or for a student enrolled in a foreign school when the student does not begin attendance. In addition, Sec. 668.21(a)(2)(ii) states that a final demand letter must be issued to students for such funds.
PostWithdrawal Disbursements of Grant Funds Made Directly to a Student (Sec. 668.22)

Comments: Four commenters agreed with the proposal to remove the requirement that an institution notify and obtain the student's permission prior to making a direct disbursement of any Title IV grant funds that make up a postwithdrawal disbursement. One commenter believed the change would help streamline part of a complicated administrative process. However, one commenter urged the Department to establish one timeframe for late disbursements, disbursements of Title IV grant funds that make up a postwithdrawal disbursement, and post withdrawal disbursements of Title IV loan funds. Two commenters believed that an institution should be required to make a direct disbursement of Title IV grant funds that make up a postwithdrawal disbursement as soon as possible, but no later than 180 days after the date of the institution's determination that the student withdrew, rather than the proposed 30 days, to match the proposed timeframe for making a late disbursement. One commenter felt that an institution should be required to make such a disbursement as soon as possible, but no later than 45 days after the date of the institution's determination that the student withdrew, rather than the proposed 30 days, to match the timeframe for an institutional return of funds to the Title IV programs when a student withdraws. The commenter stated that most institutions are looking at this process at the same time a Return of Title IV Funds calculation is being done, so the timeframe should be the same. Four commenters felt that the requirement for making a post withdrawal disbursement of Title IV loan funds should be changed to as soon as possible, but no later than 180 days after the date of the institution's determination that the student withdrew, rather than the existing 120 days, to match the proposed timeframe for making a late disbursement. Another commenter asked if it was permissible for an institution not to issue the direct disbursement of Title IV grant funds that make up a postwithdrawal disbursement if a student should wish not to receive it. The commenter noted that some students who plan to transfer to another institution may wish to use their Title IV grant eligibility at the new institution.

Discussion: Although the Secretary believes that, in the vast majority of cases, an institution will not need 45 days from the date it determines that a student withdrew to make a direct disbursement of Title IV grant funds to a student as a postwithdrawal disbursement, the Secretary agrees with the comment that making the timeframe consistent with the 45day timeframe for the payment of an
institutional return of unearned Title IV funds will give institutions one less timeframe to take into account. For the same reason, the Secretary agrees with the comment that the requirement for making a postwithdrawal disbursement of Title IV loan funds should be changed to ``as soon as possible, but no later than 180 days after the date of the institution's determination that the student withdrew'' to match the timeframe for making a late disbursement. These funds are intended to cover educational expenses that have already occurred and must be provided to the student in a timely manner.

The Secretary does not agree with the suggestion that an institution should have 180 days to make a direct disbursement of Title IV grant funds to a student as a postwithdrawal disbursement. Additional time is provided for an institution to make a post withdrawal disbursement of loan funds to allow for the required notification to the student, or parent in the case of a PLUS loan, and to receive a response. The Secretary emphasizes that an institution must return or disburse funds as soon as possible after determining that a student has withdrawn.

An institution must be able to document that its procedures call for it to get postwithdrawal disbursements to its students as soon as possible, and that it is consistently following those procedures.

These regulations require an institution to disburse directly to a student, as soon as possible, but no later than 45 days after the date of the institution's determination that the student withdrew, any amount of a postwithdrawal disbursement of grant funds that is not credited to the student's account. An institution may not delay its disbursement processes in order to ascertain whether a student wishes to receive the grant funds to which the student is entitled. However, while the institution is processing the disbursement it may, at its discretion, notify the student that it may be beneficial to turn down all or a portion of the grant funds to preserve the student's grant eligibility for attendance at another institution. Of course, if a student independently contacts the institution and declines receipt of a grant disbursement, the institution is not required to make the disbursement.

Changes: Section 668.22(a)(5)(ii)(B)(1) is changed to require an institution to make a direct disbursement of Title IV grant funds to a student as a postwithdrawal disbursement as soon as possible, but no later than 45 days after the date it determines that a student withdrew.

Section 668.22(a)(5)(iii)(C) is changed to require that, after receiving confirmation that a student, or parent in the case of a PLUS loan, wants a postwithdrawal disbursement of Title IV loan funds credited to the student's account or disbursed directly, an institution must make a postwithdrawal disbursement of Title IV loan funds as soon as possible, but no later than 180 days after the date of the institution's determination that the student withdrew.
Cash ManagementRecovery of Unclaimed Title IV Funds (Sec. 668.164(h))

Comments: With regard to returning Title IV funds for a check that is not cashed, one commenter asked the Department to clarify (1) how this provision applies to Federal WorkStudy (FWS) payroll checks and (2) the timeframes and processes for handling FWS funds. Another commenter from an institution suggested a oneyear timeframe for resolving issues with unclaimed funds to coincide with the institution's business practice for reviewing, recovering, and returning Title IV funds.

Discussion: The Department agrees that it would be helpful to clarify how Sec. 668.164(h) applies to FWS funds. The timeframes and processes for returning FWS funds are the same as those for other Title IV funds. However, the FWS funds that must be returned consist of only the Federal share of the student's payroll check or EFT payment.

With respect to the comment suggesting that we extend to one year the timeframe for returning unclaimed funds, we continue to believe that the Federal interest is better protected and the benefits to the student are greater (the student's loan balance is reduced) when the uncashed checks or
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undeliverable Title IV payments are returned to the Secretary or FFEL Program lender sooner rather than later.

Changes: The regulations in Sec. 668.164(h) are amended (1) to more clearly articulate the timeframes and processes for returning Title IV funds and (2) to specify that only the Federal share of FWS funds must be returned to the Secretary.

Cash ManagementMinor PriorYear Charges (Sec. 668.164(d))

Comments: Commenters generally agreed with the proposal to increase from $100 to $200 the amount of prioryear charges that may be paid with currentyear funds. A few commenters suggested keeping the current provision that allows an institution to pay for more than $100 (or $200 under the proposed regulations) of prioryear charges if this payment will not prevent the student from paying current educational costs. One of these commenters reasoned that as a student progresses through grade levels the combination of increases in the student's loan amount and the availability of ACG and SMART funds would enable the student to pay for both currentyear and prioryear charges out of currentyear funds. The commenter suggested that in this situation using the student's credit balance to pay for any prioryear charges would be more beneficial to the student than issuing the credit balance to the student.

Discussion: As discussed in the preamble to the NPRM (72 FR 44629), the HEA provides that Title IV funds that a student is eligible to receive for an award year are intended to be used for that award year. The Department originally promulgated regulations allowing the use of current year Title IV funds to pay for minor prioryear charges strictly as an administrative convenience, not as a way for an institution to circumvent the law by maximizing a student's current year awards to pay for accumulated prioryear balances. In exchange for increasing from $100 to $200 the amount of minor prioryear charges that may be paid with currentyear funds, the negotiated rulemaking committee agreed to remove the exception that allowed an institution to pay for more prioryear charges under certain circumstances.

Change: None.
Cash ManagementElectronic Disbursements of Title IV Funds (Sec. 668.164(c))

Comment: A commenter suggested expanding the proposed definition of ``bank account'' in Sec. 668.164(c)(2) to include accounts at credit unions that are insured by the National Credit Union Share Insurance Fund (NCUSIF).

Discussion: We agree. NCUSIF is an arm of the National Credit Union Administration (NCUA), which is the independent Federal agency that charters and supervises Federal credit unions. NCUA, backed by the full faith and credit of the U.S. government, operates the NCUSIF.

Changes: The definition of ``bank account'' in Sec. 668.164(c)(2) is amended to include accounts insured by the NCUSIF.

Comment: One commenter suggested extending from 21 to at least 45 days the period during which a student could pick up a check at the institution. The commenter stated that institutions frequently have outdated addresses for students and that providing more time for students either to pick up checks or to arrange another method of disbursement would be preferable to returning student checks. The commenter also suggested that direct payments of less than $100 be exempt from the checkmailing requirement.

Discussion: As mentioned in the preamble to the NPRM (72 FR 44630), the cases underlying this proposed provision were ones in which an institution would notify a student that a creditbalance check was available for immediate pickup, but there was no check produced by the institution. Instead, the student would be directed to a Web site where the student would choose to receive the credit balance in one of three ways: (1) By an EFT to the student's bank account, (2) by an EFT to a bank account opened on behalf of the student by the institution, or (3) by a check. We have no issue with an institution asking a student to go to a Web site to make a disbursement selection as long as the institution pays any credit balance to the student within the 14day regulatory timeframes regardless of whether the student makes a selection, chooses not to, or simply neglects to make one. However, we are concerned that an institution might request and receive Title IV funds and credit the student's account, but not pay the credit balance because the student did not make a disbursement selection. The Department emphasizes that it is the sole responsibility of the institution to make a timely credit balance payment to a student. This provision ensures that an institution produces a check that a student may pick up at a specified location at the institution. If the student does not pick up the check within 21 days, the institution must mail it to the student, disburse the credit balance to the student in some other way, or immediately return the creditbalance funds.

With respect to the comment about exempting direct payments of less than $100 from the checkmailing requirement, the commenter did not provide, and we do not see, any basis for an exemption.

Change: None.

Comment: One commenter recommended amending the proposed provision in Sec. 668.164(c)(3) under which an institution must obtain written affirmative consent from a student or parent to open a bank account by permitting the institution to obtain the student's or parent's consent in accordance with the Electronic Signatures in the Global and National Commerce Act (ESign Act).

Discussion: An institution must comply with the provisions of the ESign Act irrespective of whether those provisions are referenced in these Title IV regulations. The negotiated rulemaking committee agreed to include a simple but specific consent requirement in the regulations instead of relying solely on the ESign Act, which may be interpreted and implemented in different ways.

Change: None.

Comment: One commenter suggested two changes to the proposed provision under which an institution must ensure that a student has convenient access to branch offices of the bank or ATMs of the bank or affiliated bank for the purpose of making free cash withdrawals. First, the commenter recommended that the term ``affiliated'' be defined to mean a bank under the same common ownership and control as the bank in which the account was opened. Second, the commenter suggested defining the term ``convenient access'' to require that a branch office or ATM of the bank in which the account was opened be located within 10 miles of the main campus of an institution, except for students enrolled in a distance education program offered by the institution.

Discussion: The suggested definition of ``affiliated'' is too narrow. In the context of these regulations, the term ``affiliated'' means any relationship or arrangement between the bank where an account is opened and any other bank that permits a student to make free cash withdrawals from the student's accounts. With regard to convenient access, we agree that some geographical limits are needed, but these limits apply only to students who are on or near the institution's campus. We believe it would be unreasonable to require an institution to ensure that students enrolled in its distance education
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programs have convenient access to branch offices or ATMs that offer free cash withdrawals regardless of where those students reside.

Changes: Section 668.164(c)(3)(v) is amended by replacing ``affiliated bank'' with ``another bank.'' Section 668.164(c)(3)(v) is amended to describe ``convenient access'' as having a branch office of the bank or an ATM located (1) on the institution's campus, (2) in institutionallyowned or operated facilities, or (3) immediately adjacent to and accessible from the campus, consistent with the definition of ``Public Property'' in Sec. 668.46(a).

Comment: One commenter suggested that the regulations clarify that service providers who help institutions disburse creditbalance funds electronically are ``thirdparty servicers'' as provided in Sec. 668.2 and, therefore, subject to annual audit and financial responsibility requirements. The commenter contended that a number of service providers do not comply with these requirements and requested that the Department act proactively to reduce the Federal financial risk and the risk posed to the institutions involved.

Discussion: As provided under Sec. 668.23(a)(3) and (c), third party servicers for institutions must submit compliance audits but are not subject to financial standards and are not required to submit financial audits. If the commenter's description of service providers refers to banks that enter into agreements with institutions to issue and service storedvalue cards, we have heretofore not considered the thirdparty servicer definition in Sec. 668.2 to apply to banking services provided to institutions.

With regard to any information the commenter may have about any parties that should, but do not, comply with Title IV regulations, the commenter should notify the Department's Office of the Inspector General.

Change: None.

Comments: One commenter disagreed with the provision in Sec. 668.164(c)(3), under which an institution may request, but not require or rely upon, the student to open a bank account. The commenter believed that an institution should have the flexibility to require a student to authorize an EFT, noting that this practice is used by many employers for payroll purposes.

Discussion: The Department intended to make it easier for an institution to make EFT payments by removing the requirement in Sec. 668.165(b)(1)(i) that the institution first obtain authorization to disburse Title IV funds to a bank account designated by the student or parent. The provisions proposed in Sec. 668.164(c)(3) relate to situations where the institution opens a bank account on behalf of the student (or is actively involved in opening the account) for the purpose of making EFT payments of Title IV funds to that account. For these cases only, the institution must obtain the consent of the student or parent before it opens the bank account. In all other cases, the Department agrees that an institution may establish a policy requiring a student to provide bank account information or open an account at a bank of the student's choosing, as long as this policy does not delay the disbursement of Title IV funds to the student. Thus, if a student does not provide bank account information or does not maintain a bank accounte.g., the student does not qualify for a bank account or refuses to open an accountthe institution must
nevertheless disburse the Title IV funds to the student in a timely manner by some other means.

Changes: Section 668.164(c)(3) is amended to provide that an institution may establish a policy requiring students to provide bank account information or open an account at a bank of the student's choosing.

Cash ManagementLate Disbursements (Sec. 668.164(g))

Comment: One commenter representing a guaranty agency urged the Department to consider an exception appeal process under which a late disbursement could be made after the proposed 180day period. The commenter stated that a student should not be harmed by an oversight or anomaly in the institution's or lender's process and offered that the FFEL Program guarantor could monitor and manage this exception process, eliminating the need for the institution to contact the Department.

Discussion: While we appreciate the guaranty agency's offer, this change is not being made to respond to a workload issue. Rather, our experience with providing an exception process for making late disbursements is that institutions tend to rely on this process rather than implementing effective administrative controls for making timely disbursements. We believe that extending the timeframe from 120 days to 180 days provides institutions, lenders, and guaranty agencies more than sufficient time to identify and make late disbursements to students who may be affected by oversight and process anomalies.

Change: None.
Loan Cancellation Notice and Affirmative Confirmation of a Loan (Sec. 668.165(a))

Comments: Several commenters agreed with the flexible approach in the NPRM allowing an institution to either affirmatively confirm that a student wants a loan or comply with more stringent loan notification and cancellation provisions. A few commenters requested that the Department provide examples of an affirmative confirmation of a loan.

Discussion: The Department would consider an affirmative confirmation to be a student response, either in electronic form or on paper, accepting the loan or loans offered by the institution. Examples of affirmative confirmation by a student are an award letter signed by the student accepting the loan award or a process whereby the student accesses a secure Web site to inform the institution that the student accepts the loan.

Change: None.
Minimum Period for Certifying or Originating a Loan (Sec. Sec. 682.603 and 685.301)

Comments: Several commenters supported the proposed change allowing transfer students to obtain the remaining portion of their current annual loan limit for the remaining portion of their program or academic year. However, one commenter questioned how this would work in practice. The commenter asked whether the number of transfer credits accepted or the number of transfer credits earned during the overlapping loan period would have any bearing on the implementation of this proposed change. The commenter asked us to consider the example of a student with a loan period of 11/12/06 to 9/30/07 at a previous institution that transferred with 18 credits to a new institution where the student had a loan period of 8/15/07 to 5/25/08. The student received $2,000 (out of a possible $3,500) at the first institution for a loan period that overlapped the loan period at the second institution. The commenter stated that under the previous regulations the second institution could only provide the student, for the second loan period of 8/15/07 to 5/25/08, with $1,500, i.e., the difference between what the student could have received at the first institution ($3,500) and what the student did receive there ($2,000). The commenter wondered how the second institution could award loan funds to the student in this example under the proposed regulations.

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Another commenter inquired about the proposed regulation that allows institutions to certify or originate new loans for students when they complete a degree program using a loan period of less than an academic year and then begin another degree program for the remainder of the same academic year at the same institution. The commenter suggested that students in nondegree programs should receive similar treatment. Another commenter asked whether this proposal would address a student who finished a bachelor's degree and immediately began a master's degree at the same institution in the same way that it addressed a student who finished an associate's degree and immediately began a bachelor's degree.

Another commenter asked us to clarify whether the meaning of the phrase ``substantially equal in length'' in Sec. Sec. 682.603(g)(4) and 685.301(c)(4), is applicable to all references in Sec. Sec. 682.603 and 685.301 where that phrase is used.

Discussion: In the first commenter's example, a student, eligible for $3,500, who received a loan of $2,000 for a loan period of 11/12/06 to 9/30/07 at one institution and who transferred with 18 credits to a second institution where the student would normally have a loan period of 8/15/07 to 5/25/08, could, under these final regulations, receive a loan at the second institution for the balance of the annual loan limit for the balance of the academic year that started at the first institution. Neither the number of credits transferred into the second institution nor the number of credits earned during the overlapping loan period is relevant. Thus, this student, if otherwise eligible, could receive a loan of $1500 for a loan period of 8/15/07 to 9/30/07. Note that if the overlapping loan period were sufficiently short (perhaps less than a month) some lenders might decline to make a loan. In that case, the student would not receive a loan for that short period of time and would end up with a new loan period starting on the day after the old loan period ended. After the balance of the loan period from the first institution ends (i.e., starting on 10/1/07), the student could receive a new loan for a new academic year (or for the remainder of the program if there were less than an academic year remaining in the student's program), irrespective of whether the 10/1/ 07 date coincided with the start of the student's classes, as long as the student was enrolled and eligible at that time.

With regard to the comment about whether a student who finished a bachelor's degree and immediately began a master's degree at the same institution would be treated in the same way as a student who finished an associate's degree and immediately began a bachelor's degree, we note that the regulations do not differentiate between types of degree programs. And with regard to the suggestion that students in nondegree programs should be treated the same way as students in degree programs are treated, we agree that they should be. Accordingly, all situations are addressed in the same manner when a student finishes one program for which the student's last loan was for less than an academic year and immediately starts another program at the same institution. That is, the institution may certify or originate a loan for the remainder of the academic year for the remaining balance of the student's annual loan limit at the loan level associated with the new program.

Finally, because it would more accurately describe our intent, we agree with the commenter's suggestion to apply the meaning of the phrase ``substantially equal in length'' to all of Sec. Sec. 682.603 and 685.301.

Changes: Sections 682.603(f)(1)(iii) and 685.301(a)(9)(iii) are amended by removing the wording that restricted these regulations to degree programs. Also, we have clarified that the meaning of ``substantially equal in length'' in Sec. Sec. 682.603(g)(4) and 685.301(c)(4) is applicable to all of Sec. Sec. 682.603 and 685.301. Annual Loan Limit Progression (Sec. Sec. 682.603 and 685.301)

Comments: One commenter stated that a student in a nonstandard term credit hour program with terms that are substantially equal in length, where the terms are at least eight weeks in length rather than the proposed nine weeks in length, should progress to the next loan limit when the student completes an academic year in calendar time. The commenter noted that eightweek terms are a natural subdivision of the 16week standard semester used for traditional students, and should be treated in the same manner as standard terms.

Another commenter stated that a student in any nonstandard term credit hour program with terms that are substantially equal in length, not just those with terms that are at least nine weeks in length, should progress to the next loan limit when the student completes an academic year in calendar time. The commenter noted that the disbursement requirements in the regulations published in the Federal Register on November 1, 2000 (65 FR 65616), with which these regulations are supposed to be consistent, did not make such a distinction. The commenter also noted that a student in a nonstandard term credit hour program, with terms that are substantially equal in length but not at least nine weeks in length, does not have to successfully complete a payment period to advance to the next payment period. The commenter suggests that the student could progress to the next payment period even if the student failed some or all of the courses in the payment period. However, under the proposed changes, the student who failed some or all of the courses in the payment period would not progress to the next annual loan limit until the student successfully completes the failed hours.

One commenter asked the Department to clarify that an institution may certify or originate a Stafford loan increase for a student attending a nonstandard term program with substantially equal terms of the appropriate length when that student's grade level standing advances and that student gains eligibility for a higher Stafford annual loan limit during an academic year. The commenter also asked the Department to clarify whether an institution must prorate the FFEL or Direct Loan Stafford annual loan limit for a student attending an undergraduate program offered in nonstandard terms that are substantially equal in length, and of the appropriate minimum length, when the student is enrolled in a final period of study consisting of fewer terms than are in the academic year.

Discussion: The Department proposed the nineweek minimum for purposes of defining when a single term loan may be made in a nonstandard term program with terms that are substantially equal in length. As noted in the preamble to the NPRM (72 FR 44632 and 44633), the Department believes that the minimum length should be close to the length of the shortest standard term, a quarter, in order to justify single term loan certification or origination and standard termbased annual loan limit progression. We do not believe that eightweek terms are sufficiently close to 10week quarters for this expanded purpose.

The commenter is correct that the requirements for completion of a payment period for purposes of disbursement within the loan period for students in nonstandardterm credit hour programs with terms that are substantially equal in length do not distinguish between those terms that are at least nine weeks in length and those that are not. For completion of a payment period, all students in nonstandard term credit hour programs with terms that are substantially equal
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in length, irrespective of the length of those terms, are treated the same as students in standard term programs. That is, they do not have to successfully complete (i.e., pass the coursework in) a payment period to advance to the next payment period. However, the student who failed to complete the coursework in an academic year would not progress to the next academic year, and thus regain eligibility for the next annual loan limit, until the student successfully completes the failed hours. This restriction has historically been applied to clock hour programs, nonterm credit hour programs, and nonstandard term credit hour programs. Many of these programs have tended to be shorter in duration and more focused on providing vocational skills. Although we have provided more flexibility in making loan disbursements by payment period for all nonstandard term credit hour programs with terms that are substantially equal in length within the loan period, we do not believe that we should extend similar flexibility to these programs in the area of loan certification or origination and annual loan limit progression. We believe doing so would result in increasing student loan indebtedness for students who are not making adequate progress toward their educational goals and who, as a result, may by at greater risk of dropping out and defaulting on their student loans.

For the same reason, an institution may not certify or originate a FFEL or Direct Loan increase for a student attending a nonstandard term credit hour program with terms substantially equal in length, that are not at least nine weeks in length, when that student's grade level standing advances. That is, we would not allow a student to gain eligibility for a higher Stafford annual loan limit during an academic year in this situation. Likewise, an undergraduate student attending a final period of study in any nonstandard term credit hour program is subject to proration of the annual loan limit while enrolled in the defined number of terms in the program's academic year but attending less than the number of credit hours for that defined academic year.

Change: None.
Processing the Borrower's Loan Proceeds and Counseling Borrowers (Sec. Sec. 682.604 and 685.301)

Comment: None.

Discussion: FFEL and Direct loans may be certified or originated for a single payment period (e.g., a single semester) for institutions that measure progress in credit hours and use a semester, trimester, or quarter system, or have terms that are substantially equal in length with no term less than nine weeks in length. Sections 682.604(c)(6)(ii) and 685.301(b)(3)(ii) address the delivery and disbursement of loan proceeds when a loan is certified or originated for a single payment period. Basically, loans made for a single payment period must be paid to the student in two installments. However, in proposing changes to these sections of the regulations in the NPRM, we inadvertently included language that would modify that basic requirement for standard terms and terms that are substantially equal in length with no term less than nine weeks in length when no change was intended for those terms. Currently an institution may not make the second payment of funds until the calendar midpoint of the loan period. The NPRM proposed to change that requirement to one in which the institution could not make the second payment of funds until the student successfully completes half the number of credit or clock hours and half the number of weeks of instructional time in the payment period. This change was not intended for standard terms and terms that are substantially equal in length with no term less than nine weeks in length and, indeed, would create a situation most of the time for those terms in which a student would not be able to receive the second half of the loan until the student was finished with the loan period (e.g., until the student was finished with the semester for which the student was borrowing money).

Change: Sections 682.604(c)(6)(ii) and 685.301(b)(3)(ii) are amended, with respect to the required two deliveries of loan proceeds (FFEL) and two payments of a loan (Direct Loan) when the loan is made for a single term, to apply the current requirements for single (standard) term loans to standard terms and terms that are substantially equal in length with no term less than nine weeks in length.

Calculation of a Pell Grant (Sec. Sec. 690.63 and 690.66)

Comment: Several commenters supported the proposed change in the Pell Grant calculations for programs using credit hours without terms or clock hours and for correspondence courses using credit hours without terms. They stated that the proposed changes would provide greater equity for students attending clock hour institutions by removing the current double proration of Pell Grant awards that affects these students in some situations.

Discussion: We appreciate the commenters' support.

Change: None.
Method of Disbursement (Sec. Sec. 690.78 and 691.78)

Comment: None.

Discussion: During our intradepartmental review we found that the disbursement provisions in Sec. Sec. 690.78 and 691.78 have been replaced or superseded by the provisions in the Cash Management Regulations in subpart K of part 668 of the Title IV regulations. This change was inadvertently omitted from the proposed regulations.

Changes: We have removed and reserved Sec. Sec. 690.78 and 691.78. Executive Order 12866

Regulatory Impact Analysis

Under Executive Order 12866, the Secretary must determine whether the regulatory action is ``significant'' and therefore subject to the requirements of the Executive Order and subject to review by the 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 that this final regulatory action will not have an annual effect on the economy of more than $100 million. Therefore, this action is not ``economically significant'' and subject to OMB review under section 3(f)(1) of Executive Order 12866. In the interests of transparency and public information, the Secretary nonetheless has assessed the potential costs and benefits of this regulatory action and has determined the benefits justify the costs. This assessment was discussed in detail in the NPRM. The Department received no comments on the regulatory impact analysis portion of the NPRM.

Need for Federal Regulatory Action

These final regulations address a broad range of issues affecting students,
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borrowers, schools, lenders, guaranty agencies, secondary market participants, and thirdparty servicers participating in one or more of the Perkins Loan, FSEOG, FFEL, Direct Loan, Pell Grant, ACG, and National SMART Grant programs. Prior to the start of negotiated rulemaking, a list of proposed regulatory changes was developed from advice and

FOR FURTHER INFORMATION CONTACT

Michelle Belton, U.S. Department of Education, 1990 K Street, NW., 8th Floor, Washington, DC 200068502. Telephone: (202) 5027821 or via the Internet at:
Michelle.Belton@ed.gov.

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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 in this section.