In addition to these changes, we have made a number of minor technical corrections and conforming changes. Changes that are statutory or that involve only minor technical corrections are generally not discussed in the Analysis of Comments and Changes section.
Waiver of Proposed Rulemaking for Additional Conforming Changes

These final regulations incorporate certain statutory changes made to the HEA by the HEOA that were not included on Team II's negotiating agenda. These changes are:

Because these amendments implement changes to the HEA that were not negotiated, we do not discuss them in the Analysis of Comments and Changes section.

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 the HEOA are subject to the APA's noticeandcomment and the HEA's negotiated rulemaking requirements, the Secretary determined that it was unnecessary to conduct negotiated rulemaking or noticeandcomment rulemaking on the changes needed in Sec. Sec. 674.12, 674.33 and 674.39. These amendments simply modify the Department's regulations to reflect statutory changes made by the HEOA to paragraphs (a), (e), and (h) of section 464 of the HEA and these changes are already effective. The Secretary does not have discretion in whether or how to implement these changes. Accordingly, negotiated rulemaking and noticeandcomment rulemaking are unnecessary.

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 him under section 482(c) of the HEA to designate the following new and amended provisions for early implementation, at the discretion of each institution, lender, guaranty agency, or servicer, as appropriate: Sec. Sec. 601.11(a), (b), and (c), 601.12, 601.21, 601.40(a), 668.16(d)(2), 668.42(a)(4), 674.12(a) and (b), 674.33(d), 674.39(a)(2), 674.42(b), 674.53, 674.57, 674.58, 674.59, 682.604, and 685.304.

Analysis of Comments and Changes

Except as noted earlier in this document regarding the limited regulations implementing provisions of the HEOA, 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 must 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 July 28, 2009, in conformance with the consensus of the negotiated rulemaking committee. Under the committee's protocols, consensus meant that no member of the
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committee dissented from the agreedupon language. The Secretary invited comments on the proposed regulations by August 27, 2009. More than 25 parties submitted comments, a number of which were substantially similar. 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 address minor, nonsubstantive changes, recommended changes that the law does not authorize the Secretary to make, or comments pertaining to operational processes. We also do not address comments pertaining to issues that were not within the scope of the NPRM.
PART 601INSTITUTION AND LENDER REQUIREMENTS RELATING TO EDUCATION LOANS
Subpart AGeneral

Definitions (Sec. 601.2)

Comment: Several commenters recommended that we modify the definition of the term preferred lender arrangement in proposed Sec. 601.2(b), based on final regulations published in the Federal Register by the Federal Reserve Board on August 14, 2009 (74 FR 41194). The Official Staff Interpretations included with the Federal Reserve's final regulations state that a lender is only required to comply with the preferred lender arrangement disclosure requirements in 12 CFR 226.48(f) if the lender is aware that it is a party to a preferred lender arrangement (74 FR 41236). In the commenters' view, this acknowledgement by the Federal Reserve Board that a lender may be in a preferred lender arrangement without realizing it means that a preferred lender arrangement does not exist unless both parties are aware of the arrangement. These commenters recommended that we revise our proposed definition of preferred lender arrangement to specify that a preferred lender arrangement can only arise when both the lender and the school are aware of the arrangement. These commenters argued that this change in the definition would align our regulations with the Official Staff Interpretations included with the Federal Reserve's final regulations.

Discussion: We disagree that there is a conflict between our definition of preferred lender arrangement and the statement in the Official Staff Interpretations included with the Federal Reserve's final regulations that a lender is only required to comply with the preferred lender arrangement disclosure requirements in 12 CFR 226.48(f) if the lender is aware that it is a party to a preferred lender arrangement.

The issue of whether a preferred lender arrangement exists if a lender is not aware that it is a party to the arrangement came up frequently during the negotiated rulemaking process. As we stated during negotiated rulemaking and in the preamble to the NPRM, a preferred lender arrangement exists if a lender provides or issues education loans to students (or the families of students) attending a covered institution and the covered institution or an institution affiliated organization recommends, promotes, or endorses the education loan products of the lender. If both of these conditions are met, a preferred lender arrangement exists, whether or not the covered institution and the lender have entered into a formal agreement.

We agree with the Federal Reserve Board that it is possible for a lender to make loans to students at a covered institution and not be aware that the covered institution recommends, promotes, or endorses the education loan products of the lender. We do not view the Federal Reserve Board's position to be, however, that a preferred lender arrangement does not exist if the lender is not aware of the preferred lender arrangement. The Federal Reserve Board acknowledges that the arrangement exists, but states that the lender is not required to comply with the preferred lender arrangement disclosure requirements in 12 CFR 226.48(f) unless the lender is aware that it is a party to a preferred lender arrangement.

Changes: None.

Comment: Paragraph (3) of the definition of preferred lender arrangement specifies that a preferred lender arrangement does not exist with regard to private education loans made by a covered institution to its own students, if the private education loans meet the requirements in paragraphs (3)(i), (3)(ii), (3)(iii) and (3)(iv) of the preferred lender arrangement definition in proposed Sec. 601.2(b). One commenter recommended that private education loans made by a foundation created to support a covered institution also should be exempted, if the loans meet the other criteria stipulated in the definition. The commenter defined ``foundations'' to include nonprofit endowments, foundations, or other entities that are created to support a covered institution and its students. The commenter stated that these foundations are not lenders or lending institutions in the traditional sense, but they often make loans to students at covered institutions, funded by donordirected contributions and other assets of the foundation.

This commenter also recommended that we amend paragraph (3)(iii) of the definition of preferred lender arrangement in proposed Sec. 601.2(b) to exempt loans made through State aid programs available to instate students. The commenter noted that such State aid loan programs may have a service requirement, resulting in no monetary payback if the borrower meets the service obligations.

Discussion: We agree with the comment relating to foundations, and note that the leadin language to the definition of the term preferred lender arrangement in proposed Sec. 601.2(b) refers to both covered institutions and institutionaffiliated organizations. We believe that the exceptions specified in paragraph (3) of the preferred lender arrangement definition apply to private education loans provided or issued by institutionaffiliated organizations, as well as private education loans provided or issued by covered institutions. The definition of the term institutionaffiliated organization includes foundations and other entities of the type the commenter included under its definition of the term ``foundations''.

We also agree with the recommendation to include loans made to students from Statefunded financial aid programs among the exceptions for Public Health Service Loans in paragraph (3)(iii) of the preferred lender arrangement definition in Sec. 601.2(b), if the terms and conditions of the loans include a loan forgiveness option for public service. However, we have not limited this exemption to Statefunded financial aid programs for instate students, as the commenter suggested. We believe that these types of Statefunded loans should be exempt from the preferred lender arrangement definition regardless of whether the loans are limited to instate students.

Changes: We have revised paragraphs (3) and (3)(i) of the definition of the term preferred lender arrangement in Sec. 601.2(b) to reference institutionaffiliated organizations (not only covered institutions). We also have revised paragraph (3)(iv) of the definition to refer to Statefunded financial aid programs.

Comment: One commenter requested clarification of the provision in the definition of preferred lender
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arrangement that states that an arrangement or agreement does not exist if the private education loan provided or issued to a student attending a covered institution is made by the covered institution using its own funds. The commenter referred to language in the preamble of the NPRM stating that an institution would not be considered to be using its own funds if it borrowed money from a lender to make a private education loan to a student and then sold the loan to that lender shortly after making the loan, in effect acting as a passthrough for the lender's funds. While sharing the Department's concern that an institution may become a passthrough for a lender if the institution sells a private education loan back to the lender from which the institution received the initial funding, the commenter also worried that limitations placed on selling private education loans made by a covered institution would prevent schools from raising capital to make additional institutional loans. The commenter asked if an institution would be permitted to sell a private education loan to a different or unaffiliated lender that was not the source of the funds used to make the loan and still be considered to be using its own funds.

Discussion: The Department remains concerned about situations where a covered institution obtains funds from a lender to make private education loans to its students and then sells the loans back to that lender, or another unaffiliated lender, shortly after making the loan. As stated in the preamble to the NPRM, we believe that the covered institution is merely acting as a passthrough for the lender's funds in these situations. Exempting loans made under these conditions from the preferred lender arrangement requirements would create a loophole that covered institutions could use to avoid the preferred lender requirements. The Department also continues to believe that these arrangements may be deceptive to borrowers who believe they are receiving a private education loan from the covered institution only to find that, very shortly after the loan is made, the actual loan holder is another entity entirely.

The Department recognizes, however, that borrowing money or using a business line of credit from a lender is a common form of financing that enables a covered institution to meet its working capital needs and operating expenses. Rather than focus on the use of a line of credit or borrowed funds in defining an institution's own funds, the Department believes that it is more helpful to consider the totality of the circumstances around the extension of private education loans by a covered institution and what happens to these loans over a period of time. In that vein, the Department will consider a covered institution that makes a private education loan to be using its own funds if the loan is made using funds that include, but are not necessarily limited to, tuition and fee revenue, investment income, endowment funds, borrowed money or a line of credit, and the covered institution does not sell or collateralize the private education loan for two years from the date the loan is fully disbursed, nor does the covered institution engage in an arrangement tying the sale of a private education loan to a lender after the two year period has elapsed.

Changes: None.

Comment: The definition of private education loan in proposed Sec. 601.2(b) corresponds to the definition of private education loan in section 140 of the Truth in Lending Act (TILA) (15 U.S.C. 1631). The definition of private education loan in 12 CFR 226.46(b)(5) of the Federal Reserve's final regulations is also based on the definition in section 140 of the TILA. However, through regulations, the Federal Reserve has interpreted the statutory term private education loan to include certain exemptions. Under 12 CFR 226.46(b)(5), an extension of credit provided by a covered educational institution is not a private education loan if the extension of credit is for a term of 90 days or less, or if the term of the extension of credit is one year or less and an interest rate will not be applied to the credit balance.

Several commenters recommended that we revise the definition of private education loan in Sec. 601.2(b) by including these exemptions. One commenter noted that applying the private education loan disclosures to such shortterm extensions of credit would not provide meaningful disclosures to students. Requiring such disclosure for shortterm extensions of credit could lead schools to stop providing such extensions of credit, making it more difficult for students to benefit from the flexible payment options offered by these extensions of credit.

Discussion: We agree with the commenters. We also note that the Federal Reserve Board's interpretation of the definition of private education loan, as reflected in 12 CFR 226.46(b)(5), renders the proposed exception for loans made under an institutional payment plan in paragraph (3)(iv) of the definition of preferred lender arrangement in proposed Sec. 601.2(b) superfluous.

Changes: We have revised the definition of private education loan in Sec. 601.2(b) to exclude extensions of credit that meet the criteria specified by the Federal Reserve Board in 12 CFR 226.46(b)(5). We also have removed the reference to institutional payment plans in subparagraph (3)(iv) of the definition of preferred lender arrangement. Subpart BLoan Information To Be Disclosed by Covered Institutions and InstitutionAffiliated Organizations

Preferred Lender Arrangement Disclosures (Sec. 601.10)

Comment: One commenter recommended that we modify proposed Sec. 601.10(a)(1)(i), which requires a covered institution in a preferred lender arrangement to disclose the maximum amount of title IV grant and loan aid available to students in the informational materials that discuss education loans that the covered institution makes available. The commenter recommended that instead of referring to title IV grant aid that the regulations specify Pell Grant aid. The commenter also recommended that the regulations include a statement that the title IV information only address title IV aid available to students attending the school. The commenter stated that it would be misleading to students to mandate disclosure of information about all title IV grant and loan programs, since not all schools participate in all of the title IV grant and loan programs.

Discussion: The information required to be disclosed to students by covered institutions and institutionaffiliated organizations is specified in section 152(a)(1)(i)(I) of the HEA. This section specifically refers to grant and loan aid under title IV of the HEA, not just Pell Grant aid. Limiting the information provided to Pell Grant aid would not be consistent with the HEA.

We agree with the commenter that the information provided in these materials should be specific to the covered institution. However, we do not agree that a change to Sec. 601.10(a)(1)(i) is necessary. In our view, Sec. 601.10(a)(1)(i), taken in context with the other regulatory provisions in Sec. 601.10, clearly refers to title IV information specific to the covered institution.

The information specified in Sec. 601.10(a)(1)(i) must be included in information materials that are provided to current or prospective students of the covered institution and must describe or discuss financial aid opportunities available to students (see Sec. 601.10(b)). This information must be provided in a manner that allows a student to take the information into account before
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selecting a lender or applying for an education loan (see Sec. 601.10(c)(2)).

The information provided under this section is intended to help students make informed decisions when applying for student financial aid. Providing a student with information on title IV financial aid programs not available at the covered institution could be misleading to the student. In addition, for prospective students who have not made a final decision on which school to attend, we believe it would be more helpful for the student to be able to easily compare the title IV financial aid opportunities available at the different schools the student is considering.

Changes: None.

Comment: The preamble to the NPRM makes a reference to Dear Colleague Letter GEN0806 (DCL GEN0806), which discusses the use of preferred lender lists in the FFEL Program. DCL GEN0806, which is available at http://www.ifap.ed.gov/dpcletters/GEN0806.html, states that a neutral, comprehensive list of lenders that have made loans to students at a school within a set period of time, such as three to five years, and that provides a clear statement that a borrower can choose to use any FFEL lender, is not considered a preferred lender list. DCL GEN0806 also states that the school may not provide any additional information about the lender on the list.

Commenters asked whether the guidance in DCL GEN0806 applies to a list of lenders who have made private education loans at a covered institution, as well as to a list of FFEL lenders.

Discussion: The guidance in DCL GEN0806 applies to a list of lenders who have made private education loans at a covered institution, as well as a list of FFEL lenders. During the negotiated rulemaking sessions, we stated that the list of lenders could also include a comparison of terms and conditions offered by the lenders on the loans being offered.

As noted in the NPRM, if a covered institution includes certain lenders on the list and leaves other lenders off the list, the Department views the covered institution as recommending, promoting, or endorsing the lenders on the list over the lenders that it has chosen to leave off the list regardless of whether the covered institution includes a disclaimer on the list, asserting that the covered institution does not recommend, promote, or endorse the lenders on its list. Unless the list is a neutral, comprehensive list of lenders who lent to students at the school, the list serves to recommend, promote, or endorse the lenders on the list, despite whatever disclaimers the school may attach to the list.

Changes: None.

Comment: One commenter noted that many institutions are no longer providing students and their families with a preferred lender list for private education loans. Instead, many institutions are referring borrowers to Web sites developed by third party entities that contain neutral lists of private education lenders and the loan products they offer. The commenter requested that the Department clarify its position on the use of these private education lender lists by institutions of higher education in helping students and their families explore their higher education financing options.

Discussion: The Department does not consider an institution that refers its students to a third party entity that maintains a comprehensive, neutral listing of private education lenders to be participating in a preferred lender arrangement as long as the institution ensures that the listing is broad in scope, does not endorse or recommend any of the lenders on the list and the lenders on the list do not pay the third party entity to be placed on the list or pay the third party entity a fee based on any loan volume generated. However, if an institution retains a third party entity to develop a customized lender list for the institution to provide to its students as a resource, either through a Request for Information or some other process, the Department does consider the institution to be participating in, and subject to the requirements of, a preferred lender arrangement under part 601.

Changes: None.

Comment: One commenter asked us to clarify whether a covered institution could be required to comply with the preferred lender arrangement disclosures if the covered institution does not have a preferred lender list. The commenter wanted to know if there are instances in which an institution would be considered to be recommending, promoting, or endorsing an education loan product in the absence of a preferred lender list. The commenter expressed concern that a covered institution might not realize that it is in a preferred lender arrangement, and therefore fail to comply with the preferred lender arrangement requirements.

Discussion: Any action that a covered institution takes to recommend, promote, or endorse the education loan products of a lender that provides or issues education loans to students attending the covered institution triggers the preferred lender arrangement requirements. The actions a covered institution may take to recommend, promote, or endorse the education loan products of a lender are not limited to including the lender on a preferred lender list.

If a covered institution is unsure whether it is in a preferred lender arrangement with a lender, the covered institution should review its policies and practices with regard to that lender. We do not believe that a covered institution would have difficulty determining whether or not the covered institution is recommending, promoting, or endorsing a lender's loan products, or whether or not the covered institution is complying with DCL GEN0806.

Moreover, the program participation agreement requirements in Sec. 668.14(b)(28) require an institution that participates in a preferred lender arrangement to annually publish a list of lenders with which it has preferred lender arrangements. To comply with this requirement, an institution must routinely determine whether it is in a preferred lender arrangement with any lender that provides education loans to the institution's students.

Changes: None.
Private Education Loan Disclosures and SelfCertification Form (Sec. 601.11)

Comment: Several commenters stated that the requirement for a self certification form should be confined to directtoconsumer private education loans and that the selfcertification form should not be required if an institution is already certifying the borrower's cost of attendance, estimated financial assistance, enrollment status and academic progress directly to the private education lender. These commenters stated that requiring an institution to provide an enrolled or admitted student applicant of a private education loan with the selfcertification form and the information necessary to complete the form, in addition to the school certification to the private education lender, would delay the delivery of loan funds to students and families, result in conflicting information if the borrower changed the information on the form, and create a duplicative and unnecessary administrative burden on institutions.

Another commenter asked the Department to provide relief from the selfcertification form requirements when:

This commenter further suggested that the Department exempt an institution of higher education that makes private education loans to its students from the requirement that it provide an applicant for the institutional loan with the selfcertification form or, alternatively, to allow the institution to provide clarification to the prospective borrower on his or her eligibility for title IV aid.

Discussion: The Department understands that requiring an institution to provide the private selfcertification form, and making available the information needed to complete the form, represents an increase in burden and may, in some cases, create duplicative processes. However, the statutory language in section 128(e)(3) of the TILA and sections 155 and 487(a)(28)(A) of the HEA is clear: The TILA requires private education lenders to obtain the selfcertification form from all borrowers of private education loans, as that term is defined in the TILA, without exception. The HEA requires the form, and the information required to complete it, to be made available to the applicant by the relevant institution of higher education, in written or electronic form, upon request of the applicant, without exceptions, and conditions an institution's participation in any title IV, HEA program, on compliance with this requirement.

The Department, in negotiating rules implementing this provision in Sec. Sec. 601.11(d) and 668.14(b)(29)(i), clarified that the institution must provide the form only to an enrolled or admitted student. We believe this clarification will help minimize the potential burden of this requirement.

Moreover, the Federal Reserve Board, in implementing section 128(e)(3) of the TILA provided some flexibility to private education lenders in obtaining the form that has an impact on an institution's responsibilities. The Federal Reserve Board, in 12 CFR 226.48, provides three ways for a private education lender to obtain the self certification form: (1) The lender may receive the form directly from the consumer; (2) the lender may receive the form from the consumer through the institution of higher education; or (3) the lender may provide the form, and the information the consumer will require to complete the form, directly to the consumer.

While all three of these options require the institution to provide the form, and the information required to complete the form, to either the private loan applicant or the private education lender, the Department believes that options 2 and 3 may be less burdensome on the institution, especially if the institution has an existing relationship with the lender.

Although the Federal Reserve has built some flexibility into the process of obtaining the selfcertification form for the lender, the Department emphasizes that an institution is not required to provide the form, or the information needed to complete the form, to anyone other than the borrower in order to comply with Sec. Sec. 601.11(d) and 668.14(b)(29)(i). An institution may provide the form to the lender at its option.

Changes: None.
Subpart CResponsibilities of Covered Institutions and Institution Affiliated Organizations

Code of Conduct (Sec. 601.21)

Comment: The code of conduct provisions in Sec. 601.21(c)(2)(i) prohibit employees of the financial aid office of a covered institution from soliciting or accepting gifts from a lender, guarantor, or loan servicer. However, as specified in Sec. 601.21(c)(2)(iii)(D), entrance and exit counseling services provided to borrowers do not qualify as a gift, as long as the covered institution's staff are in control of the counseling and the counseling does not promote the products or services of a specific lender. One commenter recommended that the Department clarify the meaning of ``in control'' with respect to the counseling, and in a manner that minimizes the potential for conflicts of interest, particularly with regard to opportunities for lenders to build awareness of their brand through the counseling. This commenter also recommended that we modify Sec. 601.21(c)(2)(iii)(D) to explicitly prohibit lenderprovided personnel from providing the counseling, except in emergency situations as specified in Sec.

601.21(c)(6)(iii)(D).

Discussion: The code of conduct requirements in Sec. 601.21 track very closely the code of conduct requirements in section 487(e)(1) through 487(e)(7) of the HEA. The statutory provisions and corresponding provision in Sec. 601.21(c)(6)(iii)(D) specifically allow a lender to provide entrance and exit counseling ``services to borrowers.'' We believe that it would be inconsistent with the statute to prohibit lenderprovided personnel from providing these services. However, as the commenter points out, the covered institution's staff must be in control of the counseling.

To remain in control of the counseling, the covered institution has to review and approve the content of the counseling and provide oversight over how the counseling is conducted. Ultimately, the covered institution is responsible for the entrance and exit counseling that its borrowers receive. We believe this oversight by the covered institution will mitigate against lenders using the counseling to promote their products.

Changes: None.

Comment: One commenter believed that proposed Sec. 601.21(c)(5)(i) goes beyond Congressional intent and may reduce the availability of private education loans to certain students. This section prohibits a covered institution from accepting any offer from a lender for funds to be used for private education loans, if the offer is made in exchange for the covered institution's providing concessions or promises to provide the lender a specified number of loans, a specified loan volume, or a preferred lender arrangement for FFEL loans or private education loans. The commenter noted that section 487(e)(5)(A)(i) of the HEA limits this provision to FFEL Loans. The commenter recommended that we remove the reference to private education loans from Sec. 601.21(c)(5)(i)(A).

Discussion: The code of conduct requirements specified in section 487(e) of the HEA are from the section of the HEA that describes program participation agreements for institutions that participate in the title IV programs. Section 487(a)(25)(A)(ii) of the HEA specifies that the code of conduct shall, ``at a minimum,'' include the provisions described in section 487(e) of the HEA. Section 153(c)(3)(A) of the HEA requires covered institutions and institutionaffiliated organizations that participate in preferred lender arrangements to comply with the code of conduct requirements in section 487(a)(25) of the HEA. Because covered institutions do not necessarily participate in the title IV programs, and preferred lender arrangements may relate to private nontitle IV education loans as well as title IV education loans, we continue to believe that it is necessary to include private education loans in Sec. 601.21(c)(5)(i)(A).

Changes: None.

Comment: The code of conduct provisions prohibit a covered institution from requesting or accepting any assistance with call center staffing or financial aid office staffing from a lender. However, Sec. 601.21(c)(6)(ii) specifies that a covered institution may request or accept educational
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counseling materials, financial literacy materials, or debt management materials from a lender, provided that the materials identify any lender that assisted in preparing or providing the materials. One commenter believed that the requirement to identify the lender on the materials could result in direct or indirect promotional opportunities for the lender. The commenter recommended that we prescribe the text and format of the language that identifies the lender on the materials. The commenter also recommended that we require the language identifying the lender to clearly state that the borrower is not expected or required to use the lender's products and has the right to obtain loans from a lender of the borrower's choice.

Discussion: We believe that it would be overly prescriptive for the Department to mandate the specific language and formatting used to identify the lender or lenders who developed the materials.

Changes: None.

Comment: While the code of conduct provisions generally prohibit a covered institution from requesting or accepting staffing assistance from a lender, Sec. 601.21(c)(6)(iii) provides an exception for staffing assistance provided on a shortterm, nonrecurring basis to assist the covered institution with financial aidrelated functions during emergencies.

One commenter stated that this provision conflicts with the prohibited inducement provisions in the Team I NPRM, published in the Federal Register on July 23, 2009 (74 FR 36556). Specifically, the commenter stated that Sec. 682.200(b)(5)(i)(A)(10) prohibits lenders from offering to perform any function required under title IV for a school, other than exit counseling.

Discussion: Section 682.200(b)(5)(i)(A)(10) does not prohibit a lender from providing these services to a school in all circumstances. The prohibition only applies if a lender provides the services ``to secure applications for FFEL loans or to secure FFEL loan volume'' (see Sec. 682.200(b)(5)(i)(A)). The Department assumes the necessary intent if we take action against a lender for providing such prohibited inducements, but the lender may demonstrate to the Department that such intent was not present, and there was no quid pro quo between the school and the lender. As long as there is no evidence that the lender was providing the services to increase the number or volume of loans, there would not be a prohibited inducement. Therefore, the provisions in Sec. 682.200(b)(5)(i)(A)(10) and Sec. 601.21(c)(6)(iii) do not conflict.

Changes: None.
Subpart ELender Responsibilities
Disclosure and Reporting Requirements for Lenders (Sec. 601.21)

Comment: One commenter noted that Sec. 601.40(c) requires FFEL lenders to annually certify to the Secretary their compliance with the HEA if they are in a preferred lender arrangement with any school. The commenter noted that a lender could be in a preferred lender arrangement without being aware of it, and suggested that the requirement in Sec. 601.40(c) only apply to lenders that know they are in a preferred lender arrangement.

Discussion: If a lender is providing or issuing education loans to students attending a covered institution, it is incumbent on the lender to determine whether or not the lender and the covered institution are in a preferred lender arrangement. Being unaware of its obligation to comply with the preferred lender arrangement requirements does not exempt a lender from its obligation to comply with the requirements.

Given the extensive reporting and disclosure requirements specified in part 601, we believe that it is extremely unlikely that a lender will be unaware when it is in a preferred lender arrangement with a covered institution.

Specifically, covered institutions are required to provide detailed information on private education loans offered pursuant to a preferred lender arrangement, as well as information on why the covered institution participates in a preferred lender arrangement with the lenders on its preferred lender list. The preferred lender list must disclose the method and criteria used by the covered institution to select lenders for inclusion on the list. Covered institutions are likely to contact lenders to determine if the lender meets the selection criteria established by the covered institution.

If the covered institution has not directly contacted the lender to obtain the information needed for its various disclosures and reports, a lender can quickly and easily determine whether it is in a preferred lender arrangement by accessing the covered institution's Web site. A covered institution that participates in a preferred lender arrangement must post on its Web site information on private education loans offered through the preferred lender arrangement, pursuant to Sec. 601.10(a)(2)(i). The covered institution must also submit an annual report to the Department, which includes a detailed explanation of why the covered institution participates in the preferred lender arrangement. The covered institution must make the annual report available to the public, pursuant to Sec. 601.20(b).

If a lender reviews all of this information and still cannot determine whether or not it is in a preferred lender arrangement with a covered institution, the lender can always contact the covered institution directly.

Enforcement actions taken by the Department against a lender for failing to comply with the preferred lender arrangement requirements will take into account the extent of the efforts made by the lender to determine whether it was in a preferred lender arrangement.

Changes: None.

Comment: Proposed Sec. 601.40(d) requires lenders in a preferred lender arrangement to annually provide to the institution or institutionaffiliated organization, and to the Secretary, information regarding the FFEL loans the lender will provide to students and families pursuant to the preferred lender arrangement for the next award year. One commenter recommended that a FFEL lender with a preferred lender arrangement with a covered institution or an institutionaffiliated organization relating to FFEL loans must annually, or upon the request of the institution, provide such information as required.

Discussion: Proposed Sec. 601.40(d) is consistent with the statutory requirements in section 153(b) of the HEA. Because the commenter provided no explanation or justification for the requested change, we have no basis for making the requested change.

Changes: None.

Code of Conduct (Sec. 668.14(b)(27))

Comment: One commenter requested that the Department clarify the applicability of the code of conduct requirements. The commenter asked under what circumstances Sec. 601.21(a) applies and under what circumstances Sec. 668.14(b)(27) applies.

Discussion: The HEOA added requirements for an institutional code of conduct in both section 153(c)(3) and section 487(a)(25) of the HEA. These changes are reflected in Sec. Sec. 601.21(a) and 668.14(b)(27), respectively. The code of conduct requirements in Sec. 601.21(a) apply to covered institutions and institutionaffiliated organizations that have a preferred lender arrangement. A covered institution is any institution that receives Federal funding, including institutions that do not participate in the Title IV programs. The regulations in Sec. 668.14(b)(27) require all institutions
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to develop a code of conduct as a condition of program participation in any of the Title IV, HEA loan program.

Changes: None.

Private Education Loan Certification (Sec. 668.14(b)(29))

Comment: Several commenters noted that Congress enacted technical amendments to the HEA that changed the data that must be included on the private loan selfcertification form. The commenters requested that corresponding changes be made to Sec. 668.14(b)(29).

Discussion: The Higher Education Technical Corrections (Pub. L. 11139) made technical amendments to the HEA that changed the information on the private loan selfcertification form that an institution must provide to any enrolled student who requests it. Public Law 11139 added a requirement to report amounts of estimated financial assistance used to replace the expected family contribution and removed the requirement to report the expected family contribution.

Changes: We revised Sec. 668.14(b)(29) to reflect the changes made by Public Law 11139 to the information to be reported to students on the private loan selfcertification form.
Disclosures of Reimbursement for Service on Advisory Boards (Sec. 668.16(d)(2))

Comment: One commenter urged the Department to amend Sec. 668.16(d)(2) by expanding the requirement to report to the Secretary any reasonable expenses paid or provided under section 140(d) of the TILA to all institutional officials with authority or influence on the selection of lenders.

Discussion: The HEOA amended section 485(m) of the HEA by adding, as a condition of participation in any title IV, HEA program, the requirement that the institution must annually report to the Secretary on any reasonable reimbursements paid or provided by a private education lender or group of lenders to any individual who is employed in the financial aid office of the institution or who otherwise has responsibilities with respect to education loans or other financial aid of the institution. The institution must report the amount of reasonable expenses paid or reimbursed, the name of the individual to whom the expenses were paid or provided, the dates of the activity for which the expenses were paid or provided, and must provide a brief description of the activity for which the expenses were paid or provided. While we believe that individuals who assist in or influence the selection of lenders would be included in the language as proposed, we agree that the recommended change is appropriate to highlight the HEOA's goal of transparency and accountability.

Changes: We have amended Sec. 668.16(d)(2) to specifically reference, as an example of individuals who have responsibilities with respect to education loans, individuals with responsibilities for the selection of lenders.

Cohort Default Rates

Comment: A few commenters asked the Department to clarify the circumstances under which an institution's published cohort default rate would be recalculated as a result of an average rates appeal.

Discussion: Regarding the provision for publicly correcting rates as a result of average rate appeals, we note that average rate appeals under Sec. Sec. 668.196(a)(1)(i) and 668.215(a)(1)(i) do not involve new rates, so the provision for correction is inapplicable. Average rate appeals under Sec. Sec. 668.196(a)(1)(ii) and 668.215(a)(1)(ii) do not involve new rates either, but instead are a comparison of the average rate with the draft rate, as corrected by any timely adjustment, challenge or appeal. The regulations continue to provide that draft rates will be kept confidential. As a result, in the case of an average rates appeal, there is no corrected rate available for the Department to publish.

Changes: We have removed from Sec. Sec. 668.196(c) and 668.215(c) the language stating that we will electronically correct the rate that is publicly released following a successful average rates appeal.

Comment: None.

Discussion: As part of our intradepartmental review of the cohort default rate regulations affected by the NPRM, we realized that proposed Sec. 668.202(c) and current Sec. 668.183(c), which identify the conditions and timeframes relating to when a borrower is considered to be in default on a loan, do not explicitly address uninsured loans held by the Department under the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA)(Pub. L. 110227). As explained more fully in a notice published in the Federal Register on July 1, 2008 (73 FR 37422), under the ECASLA, the Secretary has authority to purchase, or enter into forward commitments to purchase, FFELP loans. Loans that the Department holds under this authority are not insured. The Department is responsible for servicing these uninsured FFELP loans.

The Department's CDR regulations need to identify when these uninsured FFELP loans that the Department holds are considered in default for CDR purposes. The date of default for CDR purposes for other FFELP loans is defined under Sec. 668.183(c)(1)(i) and new Sec. 668.202(c)(1)(i) as the date a claim for insurance is paid. Because the uninsured FFELP loans are indistinguishable from Direct Loan Program loans for CDR purposes, we have revised Sec. Sec. 668.183(c) and 668.202(c) to follow the approach used in Sec. 668.183(c)(1)(ii), concerning the date of default of Direct Loan Program loans, for defining the date of default of uninsured FFELP loans held by the Department.

Changes: We have revised Sec. Sec. 668.183(c) and 668.202(c) to clarify that FFELP loans held by the Department under ECASLA are treated in the same way as Direct Loans with respect to determining when a borrower defaults.

Special Definitions (Sec. 674.51(b))

Comment: One commenter asked if there is a list of institutions that may be used as a reference when determining a borrower's eligibility for cancellation based on service as a fulltime faculty member of a Tribal College or University, as that term is defined in section 316 of the HEA.

Discussion: The HEOA amended section 465(a)(2) of the HEA by adding a new public service cancellation category for borrowers in the Federal Perkins Loan program who are performing qualifying service as a full time faculty member at a Tribal College or University, as that term is defined in section 316 of the HEA. We amended Sec. 674.51(b) to reflect this change.

The Department provides a list of Tribal Colleges and Universities on its Web site at http://www.ed.gov/about/inits/list/whtc/edlite tclist.html#MN. This list can be used as a resource when establishing a borrower's eligibility for cancellation under this provision.

Changes: None.

Teacher Cancellation (Sec. 674.53(e))

Comment: One commenter noted that proposed Sec. 674.53(e) stated that a borrower is eligible for cancellation of a Perkins loan if she is a teacher in a designated public or other nonprofit lowincome elementary or secondary school or an educational service agency and the borrower is directly employed by the school system. The commenter further noted that, in the case of a borrower who is teaching in an educational service agency, the borrower may be working for many [[Page 55634]]
school districts. The commenter asked the Department to clarify if a borrower in this situation would qualify for cancellation benefits under this provision.

Discussion: The HEOA amended section 465(a)(2)(A) of the HEA to expand cancellation benefits to a Perkins Loan borrower who is a teacher employed by an educational service agency, or who is a full time special education teacher, including a teacher of infants, toddlers, children, or youth with disabilities, who is working in a system administered by an educational service agency. We amended Sec. 674.53(a) to reflect this statutory change.

With regard to a borrower who is employed by an educational service agency, we consider the borrower to be employed by the school system and to qualify for cancellation benefits regardless of the number of school districts in which the borrower works. A more detailed discussion of educational service agencies is contained in the Department's final regulations implementing the lender and guaranty agency provisions (RIN 1840AC98) [Docket ID ED2009OPE0004].

Changes: None.
Cancellation for Law Enforcement or Corrections Officer Service (Sec. 674.57)

Comment: One commenter asked the Department to clarify how to determine if Community Defender Organizations and Federal Public Defender Organizations are established in accordance with section 3006A(g)(2)(B) and 3006A(g)(2)(A) of the Criminal Justice Act, respectively, when establishing a borrower's eligibility for cancellation based on her service as a fulltime attorney employed in a defender organization.

Discussion: The HEOA amended section 465(a)(2)(F) of the HEA to extend cancellation benefits to borrowers who are employed fulltime as an attorney in Federal Public Defender Organizations or Community Defender Organizations established in accordance with section 3006A(g)(2) of the Criminal Justice Act. We amended Sec. 674.57 of the Perkins Loan Program regulations to reflect this change.

Pursuant to the Criminal Justice Act, the Office of Defender Services of the Administrative Office of the U.S. Courts provides information on its Web site that lists these Community Defender and Federal Public Defender Organizations. The Directory can be found at the following address: http://www.fd.org/pdf_lib/defenderdir8_17_ 09.pdf.

This Directory is updated daily. Although this is not a Web site that is administered by the Department of Education, the directory provided on this site may assist in determining a borrower's eligibility for cancellation under this provision. Additional guidance on this cancellation benefit will be provided in the Department's Federal Student Aid Handbook.

Changes: None.

Cancellation for Military Service (Sec. 674.59)

Comment: One commenter asked the Department to clarify the percentage rate of cancellation for a borrower in her third year of qualifying military service under the newly authorized military service cancellation rates if the borrower had previously received two years of cancellation at the previously authorized cancellation rate of 12\1/2\ percent.

Discussion: The HEOA amended section 465(a)(3)(A) of the HEA to allow borrowers who are serving in areas of hostility to receive a cancellation of up to 100 percent of the loan for each full year of qualifying active duty service effective on August 14, 2008, in the following increments: 15 percent for the first and second years of service; 20 percent for the third and fourth years of service; and 30 percent for the fifth year of service. Previously, the percentage of a loan canceled for qualifying military service could not exceed a total of 50 percent of the loan at a rate of 12\1/2\ percent per year. We amended Sec. 674.59 to reflect these changes.

To clarify, a borrower who has received a military service cancellation for two years under the previously authorized cancellation rate of 12.5 percent, and who now qualifies for a third year of military service under the new cancellation rates, would qualify at the thirdyear 20 percent cancellation rate for the third year of eligible military service.

Changes: None.
Entrance Counseling

Counseling Borrowers (Sec. Sec. 682.604 and 685.304)

Comment: One commenter recommended that the Department add disclosures to the entrance counseling provisions alerting students to some of the negative aspects of private student loans and the availability of parent PLUS loans. The commenter also recommended that the Department provide guidance to schools about the format, presentation, and timing of the information so that it is more useful to borrowers.

Discussion: We believe that the TruthinLending Act disclosures private education lenders are required to provide to borrowers of a private education loan, which include a disclosure about the availability of Federal student aid, adequately address the information a borrower needs to know before borrowing a private education loan.

Changes: None.
Exit Counseling
Counseling Borrowers (Sec. Sec. 674.42(b), 682.604(g) and 685.304(b))

Comment: One commenter encouraged the Department to add information about the eligibility criteria for the IncomeBased Repayment and Public Service Loan Forgiveness Programs to exit counseling provisions.

Discussion: The exit counseling provisions in Sec. Sec. 682.604(g)(2)(ii) and 685.304(b)(4)(ii) require that the features of all the available repayment plans be reviewed for the borrower. The exit counseling provisions in Sec. Sec. 682.604(g)(2)(viii)(A) and 685.304(b)(4)(ix)(A) require that a general description of the terms and conditions under which a borrower may obtain full or partial forgiveness or discharge of a loan be reviewed for the borrower. The Department considers the eligibility criteria for an incomebased repayment plan and for public service loan forgiveness to be covered under these requirements.

Changes: None.
Executive Order 12866

1. 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
[[Page 55635]]
President's priorities, or the principles set forth in the Executive order.

Pursuant to the terms of the Executive order, it has been determined that this regulatory action will 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. Notwithstanding this determination, the Secretary has assessed the potential costs and benefits of this regulatory action and has determined that the benefits justify the costs.

Need for Federal Regulatory Action

As discussed in the NPRM, these regulations are needed to implement provisions of the HEA, as amended by the HEOA, particularly related to the new part E to the HEA, Lender and Institution Requirements Relating to Education Loans, which establishes extensive new disclosure requirements for lenders and institutions participating in Federal and private student loan programs. These regulations also implement significant changes made by the HEOA to provisions related to institutional cohort default rates and Perkins Loan cancellations. Regulatory Alternatives Considered

Regulatory alternatives were considered as part of the rulemaking process. These alternatives were reviewed in detail in the preamble to the NPRM under both the Regulatory Impact Analysis and the Reasons sections accompanying the discussion to each proposed regulatory provision. To the extent that they were addressed in response to comments received on the NPRM, alternatives are also considered elsewhere in this preamble to the final regulations under the Discussions sections related to each provision. No comments were received related to the Regulatory Impact Analysis discussion of these alternatives.

As discussed in the Analysis of Comments and Changes section of this preamble, these final regulations restate specific HEOA requirements, in many cases using language drawn directly from the statute, language for which consensus was reached through negotiated rulemaking, and minor revisions in response to public comments. In most cases, these revisions were technical in nature and intended to address drafting issues or to provide additional clarity. None of these changes result in revisions to cost estimates prepared for and discussed in the Regulatory Impact Analysis of the NPRM.

Benefits

As discussed in the NPRM, benefits provided in these regulations include greater transparency for borrowers participating in the Federal and private student loan programs, clearer guidelines on acceptable behavior by and relationships among institutions participating in the student loan programs, and expanded eligibility for Perkins Loan cancellation benefits. It is difficult to quantify benefits related to the new institutional and lender requirements, as there is little specific data available on either the extent of improper or questionable relationships between institutions and lenders prior

FOR FURTHER INFORMATION CONTACT

For information related to Part 601-- Institution and Lender Requirements Relating to Education Loans, Gail McLarnon or Brian Smith. Telephone: (202) 2197048 or (202) 5027551 or via the Internet at: Gail.McLarnon@ed.gov or Brian.Smith@ed.gov.

For information related to Program Participation Agreements and Standards of Administrative Capability, Marty Guthrie. Telephone: (202) 2197031 or via the Internet at: Marty.Guthrie@ed.gov.

For information related to Exit and Entrance Counseling, Brian Smith. Telephone: (202) 5027551 or via the Internet at
Brian.Smith@ed.gov.

For information related to Cohort Default Rates, John Kolotos. Telephone: (202) 5027762 or via the Internet at John.Kolotos@ed.gov.

For information related to Perkins Loan Program Cancellation Provisions, Vanessa Freeman. Telephone: (202) 5027523 or via the Internet at Vanessa.Freeman@ed.gov.

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

Individuals with disabilities can obtain this document in an accessible format (e.g., braille, large print, audiotape, or computer diskette) on request to one of the contact persons listed under FOR FURTHER INFORMATION CONTACT.