[Federal Register Volume 79, Number 12 (Friday, January 17, 2014)]
[Rules and Regulations]
[Pages 3108-3120]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-00928]


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DEPARTMENT OF EDUCATION

34 CFR Part 685

RIN 1840-AD13
[Docket ID ED-2013-OPE-0066]


William D. Ford Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

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SUMMARY: The Secretary amends the William D. Ford Federal Direct Loan 
Program (Direct Loan Program) regulations to implement the changes to 
the Higher Education Act of 1965, as amended (HEA), resulting from the 
Moving Ahead for Progress in the 21st Century Act (MAP-21). These final 
regulations reflect the provisions of the HEA, as amended by MAP-21.

DATES: Effective March 18, 2014.

FOR FURTHER INFORMATION CONTACT: Nathan Arnold, U.S. Department of 
Education, Office of Postsecondary Education, 1990 K Street NW., Room 
8084, Washington, DC 20006-8542. Telephone: (202) 219-7134.
    If you use a telecommunications device for the deaf (TDD) or a text 
telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.

SUPPLEMENTARY INFORMATION: On May 16, 2013, the Secretary published 
interim final regulations (IFR) in the Federal Register (78 FR 28954), 
implementing provisions of the HEA, as amended by MAP-21 (Pub. L. 112-
141).
    In the IFR, the Secretary--
     Provided that a Direct Subsidized Loan first disbursed on 
or after July 1, 2012, and before July 1, 2013, has an interest rate of 
3.4 percent.
     Established new Direct Loan Program regulations that 
provide that a first-time borrower on or after July 1, 2013, is no 
longer eligible to receive additional Direct Subsidized Loans if the 
period during which the borrower has received such loans meets or 
exceeds 150 percent of the published length of the program in which the 
borrower is currently enrolled. These borrowers may still receive 
Direct Unsubsidized Loans for which they are otherwise eligible.

[[Page 3109]]

     Established new Direct Loan Program regulations that 
provide that first-time borrowers who are ineligible for Direct 
Subsidized Loans as a result of these provisions and who enroll in a 
program for which the borrower would otherwise be eligible for a Direct 
Subsidized Loan become responsible for accruing interest on all 
previously received Direct Subsidized Loans during future periods, 
beginning on the date of the triggering enrollment, unless the student 
completes his or her prior program of study and has not lost 
eligibility for Direct Subsidized Loans as a result of these 
provisions.
     Prorated periods of Direct Subsidized Loan receipt during 
part-time enrollment for purposes of the 150 percent limit on Direct 
Subsidized Loan eligibility.
     Established special rules for applying the 150 percent 
limit on Direct Subsidized Loan eligibility for borrowers enrolled in 
preparatory coursework required for enrollment in an undergraduate 
program, preparatory coursework required for enrollment in a graduate 
or professional program or teacher certification coursework necessary 
for a State teaching credential for which the institution awards no 
academic credential. These special rules limit the borrower's 
responsibility for accruing interest in certain circumstances.
     Modified existing entrance- and exit-counseling 
requirements to require institutions to provide borrowers with 
information regarding the 150 percent limit on Direct Subsidized Loans.
    The IFR was effective on the date of publication, May 16, 2013, and 
the Secretary requested public comment on those regulations.
    Summary of the Major Provisions of This Regulatory Action: The 
final regulations--
     Modify the rule for rounding borrowers' subsidized usage 
periods to ensure that similarly situated borrowers have similar 
subsidized usage periods;
     Modify the calculation of the subsidized usage period for 
borrowers who are enrolled on a part-time basis for a period of less 
than a full academic year, but who receive a Direct Subsidized Loan in 
the amount of the full annual loan limit;
     Modify the calculation of the maximum eligibility period 
for two-year baccalaureate degree programs that require an associate 
degree or at least two years of postsecondary coursework as a 
prerequisite for admission; and
     Modify the calculation of the maximum eligibility period 
for certain associate degree programs that have special admissions 
requirements.
    Chart 1 summarizes the benefits, costs, and transfers stemming from 
the IFR and these final regulations, which are discussed in more detail 
in the Regulatory Impact Analysis section of this preamble. The 
Department estimates that approximately 62,000 borrowers in the 2013 
loan cohort will be affected by the IFR and final regulations, with the 
number of borrowers affected increasing in each subsequent year's 
cohort to approximately 578,000 borrowers in the 2023 loan cohort. The 
benefits of the IFR and final regulations include incentives for 
borrowers to complete programs more quickly (which could lead to 
reduced loan balances) and lower payments for borrowers receiving 
Direct Subsidized Loans between July 1, 2012, and June 30, 2013.

            Chart 1--Summary of the IFR and Final Regulations
------------------------------------------------------------------------
     Issue and key features            Benefits         Cost/transfers
------------------------------------------------------------------------
Interest rate reduction,
 limitations on eligibility for
 Direct Subsidized Loans, and
 responsibility for accruing
 interest for first-time
 borrowers on or after July 1,
 2013 (34 CFR part 685).
Reduction of interest rate on     Reduced loan        $5.6 billion for
 Direct Subsidized Loans to 3.4    balance and lower   loans disbursed
 percent after July 1, 2011, and   payments for        on or after July
 before July 1, 2013.              borrowers.          1, 2012 and
                                                       before July 1,
                                                       2013.
Limitation on Direct Subsidized   Create incentives   Estimated net
 Loan eligibility for borrowers    for students to     budget impact of
 who receive such loans for a      complete academic   $3.9 billion over
 period that is equal to 150       programs in a       the 2013-2023
 percent of the published length   timely manner and   loan cohorts.
 of the educational program and    avoid incurring
 borrower responsibility for       unnecessary loan
 accruing interest for             debt.
 enrollment after meeting or
 exceeding this limit.
Prorating periods of Direct       Account for
 Subsidized Loan receipt during    differing
 part-time enrollment.             enrollment levels
                                   to provide
                                   similar treatment
                                   to similarly
                                   situated
                                   borrowers.
Specialized treatment for         Limit borrower
 borrowers enrolled in             responsibility
 preparatory coursework required   for accruing
 for enrollment in an eligible     interest to
 program and teacher               encourage
 certification coursework          completion.
 necessary for a State teaching
 credential for which the
 institution awards no academic
 credential.
Special rule that specifies the   Provides for more
 calculation of the maximum        accurate
 eligibility period for certain    calculation of
 two-year baccalaureate degree     program length
 and selective admission           and borrower
 associate degree programs.        eligibility.
Modified entrance- and exit-      Provide borrowers   Estimated cost of
 counseling requirements to        with information    $5.21 million in
 provide borrowers with            on eligibility      increased burden
 information regarding the 150     limitations and     to institutions
 percent limit on Direct           potential           and borrowers and
 Subsidized Loans.                 responsibility      other paperwork
                                   for accruing        compliance costs.
                                   interest.
------------------------------------------------------------------------

Analysis of Comments and Changes

    The changes to the IFR included in these final regulations were 
developed through the analysis of comments received on the IFR 
published on May 16, 2013. In response to the Secretary's invitation, 
14 parties submitted comments on the IFR.
    An analysis of the comments submitted in response to the IFR and 
the changes we are making in these final regulations follows. We group 
major issues according to subject, with appropriate sections of the 
regulations referenced in parentheses. Generally, we do not address 
technical and other minor changes and suggested changes the law does 
not authorize the Secretary to make. We also do not respond to

[[Page 3110]]

comments pertaining to issues that were not within the scope of the 
IFR.

General Comments

    Comments: A commenter noted support for the Department's efforts to 
encourage students to complete educational programs in a timely manner 
and to limit unnecessary borrowing.
    A commenter expressed appreciation for the Department seeking 
public comment on the IFR, even though Congress waived the negotiated 
rulemaking requirement.
    A commenter expressed appreciation for the Department's efforts to 
assume responsibility for tracking and notification of eligibility 
determinations and loss of interest subsidy.
    Discussion: The Department thanks the commenters for their support.
    Changes: None.
    Comment: A commenter suggested that the interchangeable use of the 
terms ``enroll'' and ``attend'' in the preamble and throughout the IFR 
is misleading. The commenter noted that ``enrolled,'' as defined in 34 
CFR 668.2, means the status of a student who has completed registration 
requirements or, in the case of a student in a program offered 
predominantly by correspondence, has submitted one lesson. The 
commenter believed that the intent of the IFR was to apply the loss of 
interest subsidy based on actual attendance at an institution of higher 
education, not enrollment. The commenter recommended that we replace 
the term ``enrolled'' with the term ``attend'' and its variations 
throughout Sec.  685.200(f).
    Discussion: The commenter is correct that a borrower loses the 
interest subsidy when a borrower has reached the 150 percent limit and 
then ``attends any undergraduate program or preparatory coursework on 
at least a half-time basis at an eligible institution that participates 
in the title IV, HEA programs,'' as provided in Sec.  
685.200(f)(3)(i)(B). The term ``attend'' or its variant (i.e. 
``attends'') is used when necessary to specify that a borrower must 
actually attend the program rather than simply enroll (e.g., Sec.  
685.200(f)(3)(iv) and Sec.  685.200(f)(5)). We use the term ``attend'' 
when describing how borrowers may lose interest subsidy to specify that 
a borrower may only lose interest subsidy in certain circumstances 
after attendance, and that enrollment is not sufficient to cause the 
loss of interest subsidy. We therefore do not believe that use of the 
term ``enroll'' or its variant in Sec.  685.200(f) is incorrect or will 
result in any confusion.
    Changes: None.

First-Time Borrower (Sec.  685.200(f)(1)(i))

    Comments: A commenter asked whether a borrower is considered a 
first-time borrower under Sec.  685.200(f)(1)(i) regardless of whether 
existing loans were repaid in full before or after July 1, 2013, so 
long as the borrower does not receive the Direct Subsidized Loan until 
after the loans are repaid.
    The commenter also asked whether a borrower who owed a loan balance 
prior to July 1, 2013, who then borrows a new Direct Loan after July 1, 
2013, and then pays off all loans in full is considered a first-time 
borrower.
    Discussion: Section 685.200(f)(1)(i) defines a first-time borrower 
for purposes of the 150 percent Direct Subsidized Loan limit as ``an 
individual who has no outstanding balance of principal or interest on a 
Direct Loan Program or Federal Family Education Loan (FFEL) Program 
loan on July 1, 2013 or on the date the borrower obtains a Direct Loan 
Program loan after July 1, 2013.'' If a borrower does not owe a balance 
on a Direct Loan or a FFEL Program loan at the time he or she receives 
a Direct Subsidized Loan on or after July 1, 2013, the borrower is 
considered a first-time borrower.
    In the first circumstance described by the commenter, it is of no 
practical consequence whether a borrower pays off the balance of his or 
her Direct Subsidized Loans before or after July 1, 2013, before 
receiving a new Direct Subsidized Loan. In both cases, the borrower 
will not have a Direct Loan or FFEL program loan balance when the 
borrower receives his or her Direct Subsidized Loan on or after July 1, 
2013. Therefore, in both cases, the borrower is a first-time borrower 
under the terms of Sec.  685.200(f)(1)(i).
    In the second circumstance described by the commenter, when the 
borrower receives his or her Direct Subsidized Loan after July 1, 2013, 
the borrower does owe a balance on a Direct Loan or a FFEL Program 
Loan. Therefore, at that point in time, the borrower would not be 
considered a first-time borrower. If the borrower subsequently pays off 
the balance of his or her loans and then borrows a new Direct 
Subsidized Loan, the borrower would then be considered a first-time 
borrower.
    Changes: None.

Maximum Eligibility Period (Sec.  685.200(f)(1)(ii))

    Comments: Two commenters stated that they believed that the 
definition of the term ``maximum eligibility period'' in Sec.  
685.200(f)(1)(ii) is inconsistent with the provisions of MAP-21. These 
commenters argued that under MAP-21, a transfer student's aggregate 
period of enrollment should be calculated based on the ``longest 
educational program in which the borrower'' is or was enrolled. The 
commenters believed that calculating the maximum eligibility period 
based on the borrower's current educational program disadvantages 
borrowers who transfer from a longer program to a shorter program 
(``reverse transfer students'').
    One commenter noted that the satisfactory academic progress 
regulations in 34 CFR 668.34 specify that the pace at which a student 
progresses through his or her educational program must ensure that the 
student completes the program within the maximum timeframe for that 
program. The definition of the term ``maximum timeframe'' in 34 CFR 
668.34(b) specifies that, for undergraduate programs, the maximum 
timeframe is ``no longer than 150 percent of the published length of 
the educational program.'' The commenter recommended that, to make it 
easier for financial aid administrators to understand Sec.  685.200(f), 
the Department should use the maximum timeframe standard in 34 CFR 
668.34(b) for purposes of determining the borrowers' Direct Subsidized 
Loan eligibility, rather than using the maximum eligibility period in 
Sec.  685.200(f)(1)(ii).
    Two commenters recommended that the definition of ``maximum 
eligibility period'' mirror the Pell Grant Lifetime Eligibility Used 
(LEU) limit, which limits a student's receipt of Pell Grants to 12 
semesters or an equivalent period.
    Discussion: In defining the term ``maximum eligibility period,'' 
consistent with section 455(q)(1) of the HEA, as added by MAP-21, we 
sought to treat similarly situated borrowers in a similar manner. As we 
stated in the preamble to the IFR, ``without recalculating a borrower's 
maximum eligibility period when the borrower enrolls in a different 
program, otherwise-equivalent borrowers would have inconsistent and 
inequitable eligibility periods.'' 78 FR at 28960. The suggestion to 
base Direct Subsidized Loan eligibility on the longest program in which 
the borrower had ever enrolled would result in maximum eligibility 
periods dependent in part on whether a particular borrower previously 
enrolled in a program of a longer or shorter duration for which he or 
she received Direct Subsidized Loans. The commenter's approach would 
introduce a method of calculating remaining eligibility periods 
contrary to statutory intent because it would use a standard that is 
unrelated to a borrower's timely completion of a program. It would also

[[Page 3111]]

introduce significant inconsistencies between borrowers with different 
postsecondary enrollment histories.
    Section 455(q)(1) of the HEA provides that the calculation of the 
150 percent limit is based on the published length of the borrower's 
educational program and the period of time for which the borrower 
received Direct Subsidized Loans. The statute does not mention 
satisfactory academic progress or related measurements or the Pell 
Grant LEU measurement. Those standards do not reflect section 455(q)(1) 
of the HEA. Therefore, the Secretary is not adopting those standards 
for purposes of calculating the 150 percent limit.
    Changes: None.
    Comments: Two commenters noted that an educational program's 
published length is not always a direct reflection of the program's 
degree level. Many institutions offer degree completion programs 
designed to allow students to matriculate into a bachelor's degree 
program with transfer credits counting toward the bachelor's degree. 
Since enrollment in these programs requires transfer credits, and the 
institution offers the program in such a way as to only offer ``upper-
division coursework,'' a degree-completion program at the baccalaureate 
level is often two years in length with a maximum eligibility period of 
three years. One of the commenters recommended that instead, the 
maximum eligibility period should be calculated using a minimum program 
length based on credential level, rather than the published length of 
the program.
    A commenter also noted that there are certain associate degree 
programs that are similar to the baccalaureate degree programs 
addressed in the preceding paragraphs. These are programs, often at 
community colleges, that confer a two-year associate degree in a 
specialized field, but which are offered at institutions that do not 
offer a four-year baccalaureate degree. As a prerequisite to admission 
into the associate degree program, students generally must complete at 
least two-years of general education coursework. Afterward, the two-
year associate degree program provides the necessary ``upper-division'' 
or ``specialized'' coursework, which is often practical or clinical in 
nature. These programs generally lead to State licensure in occupations 
that are fundamentally similar to programs offering these 
specializations at the four-year bachelor's degree level.
    Discussion: We agree with the comments suggesting we revise Sec.  
685.200(f) because, under the IFR, borrowers in baccalaureate degree 
completion programs would be treated differently than borrowers 
enrolled in full programs of equivalent degree levels.
    For example, imagine two borrowers, one enrolled in a program with 
a published length of four years and the other initially enrolled in a 
program with a published length of two years before going on to 
complete a two-year bachelor's degree at another institution in a 
program that only offers the upper-division coursework required to 
receive the bachelor's degree. The first borrower would have a maximum 
eligibility period of six years to complete the bachelor's degree 
program. The second borrower would have a maximum eligibility period of 
three years because each of the programs in which the borrower is 
enrolled has a published length of two years, and loans previously 
received will continue to count in the second program. The effect of 
this treatment is that, under the IFR, the second borrower has only 
three years of eligibility for Direct Subsidized Loans, while the first 
borrower has six years of eligibility despite being enrolled in a 
program with an equivalent degree and effectively equivalent program 
length. We believe this result is contrary to the intent of the 
statute.
    To ensure that borrowers' maximum eligibility periods are 
calculated consistent with the statutory intent, we have revised Sec.  
685.200(f) to specify that certain two-year programs that meet specific 
criteria are, for purposes of determining a borrower's maximum 
eligibility period, considered bachelor's degree programs equivalent to 
those that are four years in duration. To be in this category, a two-
year degree-completion program must be a bachelor's degree program that 
requires an associate degree or the successful completion of at least 
two years of postsecondary coursework from an eligible program as a 
prerequisite for admission. The successful completion of coursework 
means receiving academic credit for coursework that is deemed 
sufficient to meet admissions requirements as determined by the 
accepting institution.
    Institutions which offer programs that meet the requirements of 
this provision would report a program length of four years for those 
programs to the Department for a maximum eligibility period of six 
years.
    We also agree with the commenter that there are certain associate 
degree programs that are similar to these bachelor's degree programs. 
Under the IFR, borrowers attending these programs would have limited 
maximum eligibility periods for the same reasons as borrowers in 
bachelor's degree-completion programs; even completing the program on 
time could result in the borrower's loss of eligibility for further 
Direct Subsidized Loans. We do not believe that these consequences for 
borrowers who complete these programs on time are consistent with the 
statutory intent of MAP-21. We have therefore revised Sec.  685.200(f) 
to provide that these programs will be considered to have a program 
length of four years.
    Applying this provision broadly to attendance in any subsequent 
associate degree program or to multiple, unrelated associate degree 
programs would be contrary to the statutory intent of encouraging 
students to complete their programs in a timely manner. Selective-
admissions associate degree programs, by contrast, only admit 
individuals who have completed prerequisite coursework and are 
analogous to longer baccalaureate degree programs. Therefore, we will 
apply this provision narrowly to associate degree programs that are 
designed specifically to confer a more specialized credential after 
completion of two years of postsecondary coursework and which are, for 
practical purposes, equivalent in length to a baccalaureate degree 
program.
    To ensure that these provisions are implemented in a manner 
consistent with the goals of the statute, the special treatment for 
selective-admissions associate degree programs applies only to programs 
that meet certain criteria. To be treated as a four-year program for 
purposes of the maximum eligibility period calculation, a two-year 
associate degree program must require, as a prerequisite to admission, 
that the student have successfully completed an associate degree or at 
least two years of postsecondary coursework in an eligible program. 
Furthermore, the program must be a selective admission program, which 
means that the program is not an ``open admission'' program, and admits 
students based on competitive criteria. These criteria may include, but 
are not limited to, entrance exam scores, class rank, grade point 
average, written essays, or recommendation letters. Finally, these 
programs must provide the academic qualifications necessary for a 
profession that requires licensure or a certification by the State in 
which the program is offered. Typically, a baccalaureate degree is 
required in order to obtain the licensure or certification that the 
selective-admission associate degree program leads to, and this 
requirement would ensure that programs qualifying for this provision 
are comparable to four-year baccalaureate degree programs. Examples of 
programs that would likely

[[Page 3112]]

meet this criterion are registered nursing programs or physical therapy 
programs. Students in these selective-admission associate degree 
programs are eligible for Direct Subsidized Loans at the annual loan 
limit related to an associate degree program (i.e., loan limits that do 
not exceed the second-year level under 34 CFR 685.203(a)(1)(i)-
(a)(2)(i)).
    It should also be noted that Sec.  685.200(f)(8) does not confer 
title IV program eligibility on programs that are otherwise ineligible 
to participate in those programs. Programs seeking to qualify for the 
special rule provided under this regulation must meet and comply with 
all other statutory and regulatory requirements to award Federal 
student aid.
    To ensure compliance with the requirements of this regulation, 
during the Department's program compliance reviews we will evaluate 
whether an institution with selective admission associate degree 
programs which have certified that they meet the requirements under 
this regulation do satisfy those requirements. If we determine that the 
institution did not qualify for the special rule provided in this 
regulation, the institution will not be permitted to report a program 
length of four years for that program and must instead report a program 
length of two years. However, students who were previously enrolled in 
such a program will not lose interest subsidy retroactively as a result 
of such a determination or required to return the loan proceeds under 
Sec.  685.211(e).
    Changes: We have added a new Sec.  685.200(f)(8) to provide special 
treatment for certain baccalaureate degree-completion programs and 
selective-admission associate degree programs. The new provisions allow 
such programs to report a program length of four years consistent with 
the preceding discussion.
    Comments: A commenter asked how a combination bachelor's and 
master's degree (BA/MA) program or other dual-degree programs are 
treated for purposes of maximum eligibility period calculations.
    Discussion: Consistent with the Department's longstanding guidance 
related to when students in combination BA/MA or other dual degree 
programs transition from undergraduate status to graduate/professional 
status (see, e.g., 2012-2013 FSA Handbook, Volume 1, Page 67 and Volume 
3, Page 96), an institution with a combination undergraduate/graduate 
or professional degree program must report program information, 
including credential level and program length, for the portion of the 
program during which the student is considered to be an undergraduate 
student and, therefore, eligible for a Direct Subsidized Loan. For 
example, if the institution offers a five-year BA/MA program, and the 
borrower is treated as an undergraduate student during the first four 
years of the program and receives Direct Subsidized Loans, the 
institution must report that the student is enrolled in a four-year 
baccalaureate degree program.
    For the duration of the student's enrollment in the program as an 
undergraduate student, the institution must report the program's 
credential level to the Common Origination and Disbursement (COD) 
System and the National Student Loan Data System (NSLDS) as a 
bachelor's degree program. Upon the student's receipt of a Direct 
Unsubsidized Loan for the master's degree portion of the program, the 
institution must report the student's enrollment as a graduate student 
to both NSLDS and the COD system.
    Changes: None.

Subsidized Usage Period (Sec.  685.200(f)(1)(iii))

    Comments: One commenter stated that the IFR is unclear as to the 
meaning of academic year. The commenter asked if the term ``academic 
year'' in Sec.  685.200(f)(1)(iii) means the period defined in 34 CFR 
668.3, and suggested that the preamble to the IFR and subsequent 
guidance provided by the Department appears to use the term ``academic 
year'' to refer to both the title IV academic year and to the academic 
year for annual loan limit purposes. The commenter stated that it is 
not clear what period of time the Department intends to use in the 
denominator when calculating the subsidized usage period, and 
recommended that the Department clarify the regulation.
    Another commenter stated that the combination of using calendar 
days in the calculation of the usage period and rounding down to the 
nearest quarter of a year could result in inequitable treatment of 
borrowers who are enrolled in similar programs that use slightly 
different academic calendars. While the commenter appreciated that 
rounding down preserves as much borrower eligibility as possible, the 
commenter also felt that rounding down would lead to inequitable 
results for similarly situated borrowers.
    Two commenters asked if it is possible that a subsidized usage 
period calculation could be rounded down to zero.
    Discussion: We agree with the commenter who emphasized the 
importance of drawing a clear distinction between the use of the term 
``academic year'' as defined in 34 CFR 668.3 and the use of the same 
term for annual loan limit purposes. We have revised Sec.  
685.200(f)(1)(iii) to clarify that the calculation of a subsidized 
usage period is based on the length of the academic year for annual 
loan limit purposes (which includes, for example, breaks between 
terms).
    We agree with the commenters who identified an unintended 
consequence of the rounding rules in Sec.  685.200(f)(1)(iii). Because 
the calculation of a subsidized usage period includes all calendar days 
of the academic year for annual loan limit purposes (e.g., including 
breaks between terms), under the IFR it would have been possible for 
borrowers who received a loan for a single term of an academic year to 
have had a subsidized usage period that is less than the ratio of the 
number of terms in the academic year for which the borrower receives a 
Direct Subsidized Loan to the number of total terms in the academic 
year.
    In creating a rounding rule, we intended to make the subsidized 
usage period both easier to understand and a round number that would 
make it more likely that the borrower could utilize his or her 
remaining eligibility. We believe that these are still important 
considerations; however, we also believe it is important to ensure that 
borrowers who are in a similar situation are treated in a similar 
manner. Accordingly, we have revised the regulations to provide for 
rounding a borrower's subsidized usage period either up or down (as 
appropriate) to the nearest tenth of a year, rather than down (and not 
up) to the nearest quarter of a year.
    This approach reduces the likelihood that similarly situated 
borrowers will have significantly divergent subsidized usage periods. 
We believe that continuing to round borrowers' subsidized usage periods 
will make remaining eligibility periods easier to understand and will 
make it more likely that borrowers have a remaining eligibility period 
that can be used to borrow an additional Direct Subsidized Loan.
    The approach to rounding in the final regulations will eliminate 
the possibility that a borrower's subsidized usage period could be 
rounded to zero. Section 685.301(a)(10) specifies that for standard 
term programs and certain nonstandard term programs, the minimum 
permissible length of a loan period is a term, or, for non-term and 
certain nonstandard term programs, the lesser of the length of a 
program or an academic year. It would not be possible for a term to 
have a sufficiently short

[[Page 3113]]

length to result in an unrounded subsidized usage period of 0.04 or 
less, and because 34 CFR 668.8 requires that the minimum length of a 
non-term or nonstandard term program is at least 10 weeks, a subsidized 
usage period of 0.04 or less is also impossible in that context. 
Therefore, under the final regulation, a borrower's subsidized usage 
period will not be rounded down to zero.
    Changes: We have revised Sec.  685.200(f)(1)(iii) to specify that 
the term ``academic year'' as used to calculate a subsidized usage 
period is an academic year for annual loan limit purposes.
    We have also revised Sec.  685.200(f)(1)(iii) to specify that a 
subsidized usage period is rounded up or down to the nearest tenth of a 
year.
    Comments: A commenter asked how the Department will ensure the 
accurate calculation of subsidized usage periods during award year 
2013-2014 if three-quarter time enrollment status reporting is not 
required until award year 2014-2015.
    Discussion: Section 685.200(f)(4)(ii) provides that borrowers 
enrolled on a half-time and three-quarter-time basis will have their 
subsidized usage periods prorated by 0.5 and 0.75, respectively. As we 
make the operational changes necessary to implement the regulations, we 
will require reporting of three-quarter-time enrollment for the 2014-
2015 award year. Although the regulations are effective in award year 
2013-2014, due to rules governing minimum loan period length (discussed 
in detail in the preamble to the IFR), borrowers will not lose Direct 
Subsidized Loan eligibility or interest subsidy until award year 2014-
2015. However, calculations involving part-time enrollment that occur 
prior to the 2014-2015 award year could affect a borrower's overall 
Direct Subsidized Loan eligibility. We will not require retrospective 
reporting of additional enrollment status indicators for the 2013-2014 
award year; instead, subsidized usage periods for 2013-2014 Direct 
Subsidized Loans will be prorated on the basis of half-time enrollment 
if, for any portion of the loan's loan period, the enrollment status 
reported to NSLDS is at least half-time, but less than full-time. For 
more information on this topic, please refer to ``150% Direct 
Subsidized Loan Limit Electronic Announcement 3'', posted to 
the Information for Financial Aid Professionals (IFAP) Web site on 
August 30, 2013, at http://ifap.ed.gov/eannouncements/083013150DSLLEA3.html.
    Changes: None.
    Comments: A commenter asked how situations in which a student is 
enrolled in a program for a very short period of time (i.e., two-week 
seminars or less) are treated for purposes of subsidized usage period 
calculations. The commenter also asked whether the answer is different 
if those enrollment periods are attached to the beginning or ending of 
a standard term.
    Discussion: Standalone periods of enrollment in very short programs 
have no effect on a borrower's subsidized usage period because the 
minimum length of an eligible program (for Direct Loan purposes) is 10 
weeks, under 34 CFR 668.8(d)(3)(i). Therefore, institutions cannot 
originate a Direct Subsidized Loan to borrowers in such a program. In 
cases where a short period of enrollment in coursework is attached to 
the beginning or end of a term, that period would be reported as part 
of the loan period or academic year to COD, and would affect that 
borrower's subsidized usage period according to the extent that the 
borrower's loan period and academic year were lengthened as a result of 
those days of enrollment being included in the calculation of the 
subsidized usage period.
    Changes: None.
    Comments: A commenter noted that Dear Colleague Letter GEN 13-13 
(http://www.ifap.ed.gov/dpcletters/GEN1313.html) states that if any 
portion of a Direct Subsidized Loan is retained by the institution 
after the Return to Title IV (R2T4) calculation, that loan period 
counts towards a borrower's subsidized usage period. The commenter 
asked whether institutions or students are permitted to return that 
portion of the loan to avoid this consequence.
    Discussion: Under the HEA and the Department's regulations, 
institutions may cancel all or a portion of a loan within 120 days of 
disbursement at the request of the borrower. Unless the student 
requests cancellation within that timeframe or the institution is 
otherwise legally obligated to cancel all or a portion of the loan, a 
institution may not return, nor may a borrower repay or cancel, loan 
funds for the purpose of reducing or eliminating a subsidized usage 
period.
    Changes: None.
    Comments: A commenter asked how subsidized usage periods are 
prorated for borrowers with more than one enrollment status during a 
loan period.
    Discussion: If a borrower has more than one enrollment status 
during a loan period, we will prorate the borrower's subsidized usage 
period based on the enrollment status reported at the time of the loan 
disbursement for the relevant payment period. For example, if a 
borrower was enrolled half-time in the fall term and full-time in the 
spring term, we would apply a 0.5 proration to the payment period 
covering the fall term so that the subsidized usage period for that 
term would be 0.25. There would be no proration for the payment period 
covering the spring term. Therefore, the borrower's subsidized usage 
period in this case would be calculated as 0.75 years and rounded to 
0.8 years.
    Changes: None.

Borrower Responsibility for Accruing Interest (Sec.  685.200(f)(3))

    Comments: One commenter recommended that the Department allow 
borrowers to regain the interest subsidy on their existing loans if 
they regain eligibility to receive additional Direct Subsidized Loans 
by transferring to a longer program. This commenter believed this would 
provide greater consistency among students with similar educational 
trajectories.
    Another commenter supported the inclusion of Sec.  
685.200(f)(3)(i)(B), which limits a borrower's loss of the interest 
subsidy to attendance in those programs in which an otherwise-eligible 
borrower could receive a Direct Subsidized Loan. However, the commenter 
did not support the regulations which result in reverse transfer 
students losing the interest subsidy without receiving an additional 
Direct Subsidized Loan. As noted by the commenter, a borrower who 
transfers from a two-year program to a one-year certificate program 
will have a maximum eligibility period of 1.5 years in the one-year 
program. If that student received two years of Direct Subsidized Loans 
while in the two-year program, the student would lose eligibility for 
Direct Subsidized Loans and would lose the interest subsidy on 
outstanding Direct Subsidized Loans upon enrollment in the one-year 
program. The lower maximum eligibility period for the one year program 
results in the borrower having no remaining eligibility period (causing 
the loss of eligibility). The fact that the borrower is enrolled in an 
undergraduate program while having no remaining eligibility period 
results in the loss of the interest subsidy. The commenter believed 
that this approach penalizes a student who has chosen to continue 
education in what may, for that student, be a more appropriate program.
    Discussion: The commenter's suggestion that the regulations should 
allow borrowers to regain lost interest subsidy is not consistent with 
section

[[Page 3114]]

455(q) of the HEA. The statute specifies that when the interest subsidy 
is lost, interest shall accrue and be paid or capitalized in the same 
manner as on a Direct Unsubsidized Loan. It does not permit the 
borrower to regain the interest subsidy.
    With respect to the commenter's request to limit the loss of the 
interest subsidy so that borrowers who transfer to programs of shorter 
duration do not lose the interest subsidy, doing so would be 
inconsistent with the statute. Section 455(q) of the HEA requires that 
a borrower who exceeds the 150 percent limitation loses the interest 
subsidy on existing Direct Subsidized Loans. However, a consequence 
related to the commenter's concern is limited by Sec.  
685.200(f)(3)(iv), which provides that if a borrower completes his or 
her prior educational program before losing the interest subsidy, 
enrolling in a shorter program would not cause the borrower to lose 
interest subsidy.
    Changes: None.

Exceptions to the Calculation of Subsidized Usage Periods (Sec.  
685.200(f)(4))

    Comments: One commenter expressed concerns about how Sec.  
685.200(f)(4)(i) affects borrowers who are enrolled for different 
periods within an academic year or over multiple academic years. The 
commenter provided an example in which an institution has a one-year 
program comprised of four quarters and two entering cohorts: Cohort A 
and cohort B. Cohort A begins attendance in the program in the fourth 
quarter of year 1. Because the costs of the program are sufficiently 
high, cohort A borrowers receive Direct Subsidized Loans in the amount 
of the annual loan limit for a single term, and have a subsidized usage 
period of one year under Sec.  685.200(f)(4)(i). Because the program 
has a maximum eligibility period of 1.5 years, when cohort A continues 
enrollment in the remainder of the program in year 2, these borrowers 
would have a remaining eligibility period of 0.5 years and, after 
exhausting that remaining eligibility period, would lose the interest 
subsidy on all loans.
    Cohort B begins attendance in the program in the first quarter of 
year 2. The costs also support borrowers in cohort B receiving Direct 
Subsidized Loans in the amount of the annual loan limit, but for a 
period of the full academic year. Cohort B would therefore be able to 
start and finish the program in an academic year without losing 
eligibility for Direct Subsidized Loans or the interest subsidy on 
those loans. The commenter recommended revising Sec.  685.200(f)(4)(i), 
or, as an alternative, allowing institutions to award less than the 
maximum eligible loan amount.
    Another commenter agreed in general with the proration approach for 
part-time enrollment included in the IFR. However, this commenter noted 
that this approach produces different results depending on a borrower's 
enrollment patterns when the borrower receives a loan in the amount of 
the annual loan limit (see, e.g., examples 1 and 2 in the subsequent 
discussion section). The commenter believed that a borrower should not 
be disadvantaged because he or she demonstrated need for a loan in the 
amount of the full annual loan limit for less than a full year of 
attendance. The commenter believed that a borrower enrolled part-time 
should have a prorated subsidized usage period even if he or she 
received a Direct Subsidized Loan in the amount of the full annual loan 
limit for a period that is less than a full academic year.
    Discussion: Under section 428G of the HEA, a borrower can receive a 
Direct Subsidized Loan in an amount equal to the full annual loan limit 
for a period that is less than a full academic year (e.g., a semester). 
As we explained in the preamble to the IFR, ``absent Sec.  
685.200(f)(4)(i), a borrower would be able to partially circumvent the 
limitations on Direct Subsidized Loan eligibility enacted by MAP-21; an 
institution could double a borrower's Direct Subsidized Loan 
eligibility by disbursing the full annual Direct Subsidized Loan limit 
for a single term of the academic year (e.g., one semester).'' 78 FR at 
28962.
    With respect to the commenter's example illustrating concerns 
regarding the effect of this provision, if, due to program cost, a 
borrower receives in a single quarter a loan in the amount of the full 
annual loan limit for an entire academic year, then the borrower would 
have a subsidized usage period of one year. However, in the absence of 
Sec.  685.200(f)(4)(i), the borrower in the commenter's example would 
be able to again receive the full annual loan limit at the beginning of 
the next academic year, and upon completion of the one-year program, 
would have received twice the amount of the full annual loan limit of 
Direct Subsidized Loan funds for the same program. We believe this is 
directly contrary to statutory intent. We believe that Sec.  
685.200(f)(4)(i) will effectively mitigate this problem. We do note 
that institutions are permitted to counsel borrowers on the amount of 
loan funds that may be advisable to accept and may refuse to originate 
loans on a case-by-case basis.
    However, we agree with the other commenter's concerns regarding the 
interaction of the annual loan limit exception and the proration of 
subsidized usage periods for part-time borrowers under Sec.  
685.200(f)(4)(ii). Under the IFR, a part-time student who receives a 
loan in the amount of the annual loan limit for a period less than an 
academic year has a subsidized usage period of one year, 
notwithstanding the part-time enrollment. This framework results in 
differences in borrowers' subsidized usage periods that is 
disproportionate to their relative enrollment levels (see the 
discussion of examples 1 and 2 in the next paragraph). To mitigate this 
difference, the final regulations apply the annual loan limit provision 
of Sec.  685.200(f)(4)(i), but also apply the proration of Sec.  
685.200(f)(4)(ii) based on the borrower's part-time enrollment status. 
The final regulations therefore minimize differing treatment of 
similarly situated borrowers while continuing to limit circumvention of 
the 150 percent limitation.
    The following two examples illustrate the operation of the final 
regulations. (Note: these examples incorporate the revised rounding 
rule discussed earlier in the preamble to the final regulations.)

    Example 1: Borrower A and Borrower B are both enrolled half-time 
and both enrolled in the fall term only. Borrower A receives a 
Direct Subsidized Loan in the amount of the annual loan limit and 
Borrower B receives a loan for less than the annual loan limit.\1\
---------------------------------------------------------------------------

    \1\ The unrounded subsidized usage period for Borrower B is 
approximately 0.24, resulting in a rounded subsidized usage period 
of 0.2.

[[Page 3115]]



                                             Subsidized Usage Period
----------------------------------------------------------------------------------------------------------------
                                   Received
          Borrowers              annual loan       Enrollment       Enrollment     Existing rule   Revised rule
                                    limit?           status           period          (years)         (years)
----------------------------------------------------------------------------------------------------------------
Borrower A...................  Yes............  Half-time......  Fall term only.               1             0.5
Borrower B...................  No.............  Half-time......  Fall term only.             0.2             0.2
----------------------------------------------------------------------------------------------------------------

    Under the IFR, when two half-time students are each receiving a 
Direct Subsidized Loan for a single term, the borrower who receives a 
loan in the amount of the annual loan limit has a subsidized usage 
period five times greater than the borrower who does not.
    The final regulations continue to apply the annual loan limit 
exception to part time borrowers--limiting the potential loophole by 
ensuring that such a borrower's subsidized usage period reflects the 
amount of Direct Subsidized Loan funds that the borrower receives--but 
would also take into account the borrower's less-than-full-time 
enrollment. As the example shows, the effect of this revised treatment 
is that Borrower A has a subsidized usage period of 0.5 years rather 
than one year for receiving the full annual loan limit for a single 
term when enrolled half-time.

    Example 2: Borrower C and Borrower D are both enrolled half-time 
and both receive a Direct Subsidized Loan in the amount of the 
annual loan limit. Borrower C receives a loan for the fall semester 
only and Borrower D receives a loan for both the fall and spring 
semesters (the full academic year).

                                             Subsidized Usage Period
----------------------------------------------------------------------------------------------------------------
                               Received annual     Enrollment       Enrollment     Existing rule   Revised rule
          Borrowers              loan limit?         status           period          (years)         (years)
----------------------------------------------------------------------------------------------------------------
Borrower C...................  Yes............  Half-time......  Fall term only.               1             0.5
Borrower D...................  Yes............  Half-time......  Fall and spring             0.5             0.5
                                                                  terms.
----------------------------------------------------------------------------------------------------------------

    Both borrowers receive a loan in the amount of the full annual loan 
limit. Under the IFR, however, Borrower C receives a loan for a shorter 
period and has a subsidized usage period that is twice as large as 
Borrower D, who receives an equivalent loan amount for a longer 
period.\2\ The revision made in the final regulations results in both 
borrowers--who receive the same amount of money--receiving the same 
subsidized usage period.
---------------------------------------------------------------------------

    \2\ Borrower D has a subsidized usage period of 0.5 years under 
both the existing rule and the revised rule because Sec.  
685.200(f)(4)(i) applies to borrowers who receive the annual loan 
limit for a period of less than an academic year. Therefore, the 
proration rules for a part-time borrower apply under existing 
regulations for borrowers who receive the annual loan limit for the 
full academic year.
---------------------------------------------------------------------------

    Changes: We have removed the reference to the annual loan limit 
exception in Sec.  685.200(f)(4)(ii).
    Comments: A commenter expressed support for the part-time proration 
provisions in Sec.  685.200(f)(4)(ii), but expressed concern about the 
subsidized usage period calculation in Sec.  685.200(f)(1)(iii). The 
commenter stated that, under this provision, otherwise equivalent 
borrowers with differing academic calendars could have different 
subsidized usage periods. The commenter illustrated this argument with 
an example: Suppose two borrowers--one in a semester-based program and 
the other in a quarter-based program--both attend for 15 weeks of their 
program, and then both discontinue attendance after 15 weeks. The first 
borrower has a subsidized usage period corresponding to half the year 
for attendance in one semester. However, the second borrower would have 
a higher subsidized usage period because that borrower's loan period 
would extend to the end of the second quarter of the academic year, and 
therefore comprise a higher proportion of the academic year than for 
the borrower enrolled in a semester-based program. The commenter 
suggested that the calculation of the borrowers' subsidized usage 
periods should be based on the borrower's actual dates of attendance, 
rather than on the loan period.
    Discussion: We believe that the changes to the rounding rules 
described in the ``subsidized usage period'' discussion in this 
preamble will minimize the differences in subsidized usage period 
calculations for generally comparable borrowers. However, a borrower 
who discontinues enrollment in the middle of a term or payment period 
received the benefit of the loan and, therefore, has a higher 
subsidized usage period, commensurate with that increased benefit. 
Under these regulations, borrowers accrue subsidized usage periods for 
terms or payment periods in which they receive and retain loan 
proceeds.
    Changes: None.
    Comments: A commenter asked how the annual loan limit provision in 
Sec.  685.200(f)(4)(i) applies to a student's final period of 
enrollment, where a student may receive the annual loan limit in a 
prorated amount.
    Discussion: Section 685.200(f)(4)(i) applies only in the case where 
a borrower receives a loan in the amount of the full annual loan limit 
for a period of enrollment of less than an academic year. In the 
circumstance described by the commenter, where the borrower receives a 
prorated amount of the annual loan limit for enrollment in the final 
term of an academic program, the borrower has not received the full 
annual loan limit. Therefore, Sec.  685.200(f)(4)(i) does not apply and 
the borrower's subsidized usage period is calculated as described in 
Sec.  685.200(f)(1)(iii).
    Changes: To minimize confusion, we have revised Sec.  
685.200(f)(4)(i) to provide that only a Direct Subsidized Loan received 
in the amount of the ``full'' annual loan limit (as described in 
Sec. Sec.  685.203(a)(1)(i), (a)(2)(i), (a)(3)(i), (a)(4), (a)(6)(i), 
and (a)(7)) causes a borrower to have a subsidized usage period of one 
year for a period of enrollment less than an academic year.

Treatment of Preparatory Coursework (Sec.  685.200(f)(6))

    Comments: One commenter expressed support for the treatment of 
preparatory coursework in the IFR, but requested clarification that the 
regulation only limits loan receipt to twelve months, rather than 
prohibiting students from enrolling in preparatory coursework for a 
period greater than 12 months.
    Discussion: The commenter is correct. The IFR did not create a 
limitation on the length of a student's enrollment. The

[[Page 3116]]

Department's regulations do not prevent students from enrolling in 
academic programs--the Department's regulations address the 
requirements related to the administration of the programs authorized 
under the HEA. A borrower may enroll in preparatory coursework for a 
period greater than 12 months to the extent permitted by the 
institution, but may not receive title IV aid for any period beyond 12 
months.
    Changes: None.

Treatment of Teacher Certification Programs for Which an Institution 
Does Not Award an Academic Credential (Sec.  685.200(f)(7))

    Comments: One commenter expressed support for the treatment of non-
credential teacher certification programs in the IFR.
    Discussion: The Department appreciates the commenter's support.
    Changes: None.

Additional Reporting Requirements and Modifications to Departmental 
Systems

    Comments: As discussed in the preamble to the IFR, institutions 
must report to the Department the Classification of Instructional 
Programs (CIP) Codes for their title IV eligible programs. Two 
commenters noted that the existing definition of the term ``educational 
program'' in 34 CFR 600.2 makes no reference to the subject matter 
covered by the educational program. These commenters believe that 
submission of CIP Codes is not needed for the implementation of the 150 
percent requirements, and should not be required.
    One commenter objected to the requirement that institutions report 
the CIP Code, credential level, and length of program to both NSLDS and 
the COD System. The commenter believed that requiring this information 
to be reported to both systems was unnecessary, because the Department 
could distribute the data internally, as needed.
    Another commenter asserted that these regulations require reporting 
that is impractical for institutions with large enrollments. The 
commenter also stated that updating loan periods or academic year dates 
so frequently is not feasible without extraordinary manual 
intervention.
    Discussion: In response to the comment about the CIP Codes, we note 
that this information is necessary to properly determine the program in 
which the borrower is enrolled. A CIP Code is a six-digit identifier 
that designates the subject matter of the program and therefore 
distinguishes between separate programs of study. As we stated in the 
preamble of the IFR, it is necessary for the Department to collect this 
information because ``section 455(q) of the HEA and the implementing 
regulations require that the borrower's maximum eligibility period be 
determined program by program.'' 78 FR at 28971. By identifying the 
program of study, CIP Code reporting will allow the Department to 
verify the proper reporting of loan receipt and changes in program 
enrollment to determine whether the borrower should lose the interest 
subsidy. This information, including CIP Codes, is necessary to ensure 
that other information reported by institutions is accurate and that 
borrowers' maximum eligibility periods and remaining eligibility 
periods are correctly calculated. While the commenter is correct that 
the definition of ``educational program'' in 34 CFR 600.2 does not 
specifically refer to a CIP Code, this definition does not preclude the 
Secretary from requiring institutions to report CIP Codes as part of 
the normal course of reporting Direct Loan origination and disbursement 
information to the COD System or enrollment information to NSLDS.
    One goal of MAP-21 and the IFR and final regulations is to 
encourage students to complete their programs of study in a timely 
fashion by limiting Direct Subsidized Loan receipt and the interest 
subsidy. Without the collection of CIP Codes, we would not have 
sufficient information to perform meaningful analysis of this policy. 
The collection of the CIP Code is therefore necessary for the 
Department to implement the requirements of section 455(q) of the HEA.
    With respect to the commenter's suggestion that the Department 
transfer data internally, we note that the two systems will be 
collecting the data at different times and for different purposes. For 
example, the data in the COD System will be used to determine a 
borrower's eligibility for a Direct Subsidized Loan under the 150 
percent limit. Institutions report information to the COD system when 
originating or disbursing a Direct Loan (or reporting a change to a 
previously submitted origination or disbursement record). Because the 
COD System and NSLDS need the information about a borrower's program of 
study as of different times, institutions must report the same types of 
information to both systems. Although the information reported through 
the two systems is similar, the specific information being reported 
will sometimes differ due to the passage of time. Thus, the internal 
transfer of data is not a viable approach.
    Finally, with respect to the commenter with concerns regarding the 
burden on institutions associated with adjusting borrowers' records in 
COD and NSLDS: While we understand that the patterns described by the 
commenter do occur, we believe they are rare, and that for most 
borrowers, reporting enrollment and loan data will be straightforward. 
Nevertheless, we appreciate that for some borrowers, adjusting loan 
records requires additional work, and we appreciate that this task is 
one of many required of title IV aid administrators to help ensure the 
appropriate administration and awarding of title IV aid.
    We also note, however, that the requirement that institutions 
update information is not new--institutions should have always been 
updating loan period and academic year dates, as necessary, in the COD 
system. This is especially the case for borrowers who withdraw and 
commence attendance at another institution, which must rely on the 
original institution's reporting of loan period and academic year 
information in tracking the borrower's progress toward the annual loan 
limit. If this information is not updated, it is possible that an 
institution will allow a borrower to receive Direct Loan funds in 
excess of the annual loan limit. To participate in the title IV 
programs, an institution is required to maintain proper records and 
meet numerous reporting requirements. Compliance with these 
requirements is necessary not only for the integrity of the taxpayer 
funds used to finance the title IV programs, but to ensure that only 
eligible students are receiving aid.
    Congress required that a borrower's receipt of Direct Subsidized 
Loans be limited to a period of 150 percent of the borrower's program 
length. To attempt to ease the burden on institutions, the Department 
undertook the obligation of determining the borrowers' eligibility and 
possible loss of the interest subsidy. We believe that the 
alternative--requiring institutions to track borrower histories and 
make eligibility determinations with negative institutional 
consequences when funds were improperly disbursed--would be even more 
burdensome than properly reporting loan period dates, academic year 
dates, and additional information pertaining to a borrower's program of 
study.
    Changes: None.

Executive Orders 12866 and 13563

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
this

[[Page 3117]]

regulatory action is ``significant'' and, therefore, subject to the 
requirements of the Executive order and subject to review by the Office 
of Management and Budget (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 stated in the 
Executive order.
    The regulatory changes made by the IFR were estimated to have an 
annual effect on the economy of more than $100 million because the 
transfers between borrowers who exceed the 150 percent limit and the 
government total approximately $3.9 billion over loan cohorts 2013 to 
2023 and the extension of the 3.4 percent interest rate for subsidized 
loans made between July 1, 2012 and June 30, 2013 represented a 
transfer from the Federal government to Direct Subsidized Loan 
borrowers of $5.7 billion over loan cohorts 2012 to 2022.
    For purposes of this analysis, we deem the rulemaking to consist of 
the IFR as modified by these final regulations. Therefore, this final 
regulatory action is ``economically significant'' and subject to review 
by OMB under section 3(f)(1) of Executive Order 12866. Notwithstanding 
this determination, we have assessed the potential costs and benefits, 
both quantitative and qualitative, of this regulatory action and have 
determined that the benefits justify the costs.
    We have also reviewed these regulations pursuant to Executive Order 
13563, which supplements and explicitly reaffirms the principles, 
structures, and definitions governing regulatory review established in 
Executive Order 12866. To the extent permitted by law, Executive Order 
13563 requires that an agency--
    (1) Propose or adopt regulations only upon a reasoned determination 
that their benefits justify their costs (recognizing that some benefits 
and costs are difficult to quantify);
    (2) Tailor its regulations to impose the least burden on society, 
consistent with obtaining regulatory objectives, taking into account, 
among other things, and to the extent practicable, the costs of 
cumulative regulations;
    (3) In choosing among alternative regulatory approaches, select 
those approaches that maximize net benefits (including potential 
economic, environmental, public health and safety, and other 
advantages, distributive impacts, and equity);
    (4) To the extent feasible, specify performance objectives, rather 
than specifying the behavior or manner of compliance that regulated 
entities must adopt; and
    (5) Identify and assess available alternatives to direct 
regulation, including providing economic incentives to encourage the 
desired behavior, such as user fees or marketable permits, or providing 
information upon which choices can be made by the public.
    Executive Order 13563 requires agencies ``to use the best available 
techniques to quantify anticipated present and future benefits and 
costs as accurately as possible.'' The Office of Information and 
Regulatory Affairs within OMB emphasized that these techniques may 
include ``identifying changing future compliance costs that might 
result from technological innovation or anticipated behavioral 
changes.''
    We are issuing these final regulations only upon a reasoned 
determination that their benefits justify their costs. In choosing 
among alternative regulatory approaches, we selected those approaches 
that maximize net benefits. Based on the analysis that follows, the 
Department believes that these final regulations are consistent with 
the principles in Executive Order 13563.
    We also have determined that these final regulations will not 
unduly interfere with State, local, and tribal governments in the 
exercise of their governmental functions.
    In this regulatory impact analysis (RIA) we discuss the potential 
costs and benefits of the IFR as revised by the final regulations. To 
provide context for the changes made in response to comments received 
about the IFR, we have included a brief summary of the statutory and 
regulatory requirements relating to the 150 percent limitation. A full 
description and analysis of the 150 percent statutory and regulatory 
requirements and the regulatory impact of the IFR is available in the 
IFR published in the Federal Register on May 16, 2013 (78 FR 28954).

1. Summary of the IFR

    The IFR implemented the statutory requirements in MAP-21 that limit 
the availability of Direct Subsidized Loans to 150 percent of the 
program length and that cause borrowers to become responsible for 
accruing interest if they are no longer eligible for Direct Subsidized 
Loans as a result and then enroll in a program of study. The IFR 
included regulations: (i) Implementing the 3.4 percent interest rate 
for Direct Subsidized loans first disbursed on or after July 1, 2012, 
and before July 1, 2013; (ii) establishing the rules implementing the 
150 percent policy including how the relevant periods would be 
measured, and under what circumstances students would become 
responsible for accruing interest on existing loans and be ineligible 
for further subsidized loans; (iii) determining the treatment of part-
time enrollment, teacher preparation programs, and preparatory 
coursework; and (iv) modifying exit and entrance counseling 
requirements for providing borrowers information regarding the 150 
percent limit on Direct Subsidized loans. The estimated $3.957 billion 
in net budget savings that will be generated by the IFR will contribute 
to paying for the extension of the 3.4 percent interest rate on Direct 
Subsidized Loans made between July 1, 2012, and June 30, 2013, which 
was estimated to cost $5.6 billion in outlays over the 2012 to 2022 
loan cohorts.
    The Federal government and student borrowers are most directly 
affected by the statutory changes implemented in the IFR. As discussed 
in the IFR, first-time borrowers as of July 1, 2013, who are otherwise 
eligible for Direct Subsidized Loans will not be eligible for 
additional Direct Subsidized Loans after taking out Direct Subsidized 
Loans for a period that equals or exceeds 150 percent of the published 
length of their program. The limitation has two parts: (1) The 
determination that a borrower has received Direct Subsidized Loans for 
a period equal to or greater than 150 percent of the length of the 
borrower's program, and (2) once that limit has been reached or 
exceeded, the borrower's responsibility for accruing interest on prior 
undergraduate loans is triggered by the borrower's further enrollment 
in an undergraduate program of equal or shorter duration, except for 
borrowers who complete their programs before becoming responsible for 
accruing interest. The borrower is responsible for interest that 
accrues from the date that he or she becomes

[[Page 3118]]

responsible for accruing interest, not from the original disbursement 
date of the loan.
    As detailed in the IFR, the Department used a simulated pool of 
borrowers, borrowing patterns in existing NSLDS cohorts, and the 
Department's student loan model to estimate which borrowers will become 
ineligible for further Direct Subsidized loans, which borrowers would 
become responsible for accruing interest, and the net budget impact of 
a shift in volume from subsidized to unsubsidized loans. The IFR also 
described the treatment of teacher preparation programs and preparatory 
coursework for undergraduate and graduate programs. As discussed, the 
estimated net budget impact of the 150 percent regulations in the IFR 
was a savings of $3.957 billion. The process also allowed the 
Department to quantify the effect of the IFR on student borrowers. The 
percentage of borrowers estimated to exceed the 150 percent limit 
increases in later cohorts as the percentage of the cohort representing 
first-time borrowers after July 2013 increases. The percentage of 
borrowers affected reaches approximately 6.54 percent by the 2023 
cohort; by that date, almost all borrowers should be first-time 
borrowers who are subject to the final regulations. The affected 
borrowers, approximately 578,000 by the 2023 cohort, would lose 
eligibility for future Direct Subsidized Loans and become responsible 
for accruing interest.
    While the 150 percent limitation implemented in the IFR most 
directly affects the Federal government and students, institutions of 
higher education (IHEs) will face additional reporting and financial 
aid counseling requirements. The Department estimated that this 
reporting and financial aid counseling activity will cost IHEs 
approximately $1.6 million, as detailed in the Paperwork Reduction Act 
section of the IFR. In the IFR, the Department welcomed comments about 
the estimates of the costs and benefits. No comments about the analysis 
were received.

2. Regulatory Alternatives Considered and Analysis of Significant 
Comments

    In this portion of the RIA we describe the regulatory alternatives 
that the Department considered for the interim final regulations and 
significant changes made in these final regulations as compared to the 
alternative of retaining the treatment of the issue from the IFR. As 
described in the Analysis of Comments and Changes, comments were 
received from fourteen parties in response to the IFR, and the 
following changes were made in response to those comments.
    Subsidized Usage Period for Rounding Methodology: In response to 
comments about the calculation of the subsidized usage period and 
whether a subsidized usage period of 0.24 or less should be rounded 
down to zero, the Department revised the rounding methodology used to 
calculate a borrower's subsidized usage period. The rounding rule is 
meant to be easy to understand, to leave borrowers with a remaining 
subsidized usage period that they can use, and to provide similar 
treatment for similarly situated borrowers. The Secretary changed the 
rounding methodology from rounding down to the nearest quarter in the 
IFR to rounding up or down to the nearest tenth in these final 
regulations. This will lead a borrower who enrolls in the Fall semester 
and not the Spring semester and who has an unrounded subsidized usage 
period of 0.46 to have a rounded subsidized usage period of .5 instead 
of .25.
    Proration of Subsidized Usage Period and the Annual Loan Limit 
Exception: In response to comments about the interaction of the annual 
loan limit exception and the proration of subsidized usage periods for 
part-time borrowers, the Department decided to retain the annual loan 
limit provision of the IFR and then apply proration for part-time 
enrollment for a period of less than a full academic year. Under the 
IFR, a borrower who receives the full annual loan limit for a period of 
less than an academic year would have a subsidized usage period of one 
year, even if the student was enrolled part-time. Examples discussed in 
the Analysis of Comments and Changes section of this preamble 
demonstrate how this rule could interact with the proration for part-
time borrowing to create different results for similarly situated 
borrowers. The revised rules for the proration of usage periods for 
part-time borrowers who receive the full annual loan limit for 
enrollment that is less than a full academic year may result in some 
students having longer subsidized usage periods compared to the result 
under the IFR.
    Treatment of Baccalaureate Degree Completion Programs and Selective 
Admission Associate Degree Programs: Commenters noted that several 
institutions offer baccalaureate degree completion programs that are 
two years in length because credit is given for a student's prior work 
or credits. To minimize the differences in treatment of a student who 
completes two years of coursework and then transfers to one of these 
degree completion programs and a borrower who transfers to a four-year 
program, the Department has decided that, for purposes of the 150% 
limitation, two-year programs that meet certain criteria will be 
considered baccalaureate degree programs equivalent to those that are 
four years in duration. These institutions are permitted to report a 
four-year program length for these programs to the Department, for a 
maximum usage period of six years. To qualify for this treatment, an 
institution that offers these two year programs must require, as a 
prerequisite for admission into the program, completion of an associate 
degree or the successful completion of at least two years of 
postsecondary coursework in an eligible program.
    Several commenters also pointed out that some associate degree 
programs are similar to the baccalaureate degree completion programs 
previously described in that they require the completion of a separate 
associate degree or two years of coursework prior to admission. If 
these programs are treated as two year programs for purposes of the 150 
percent limitation, students in these programs would not have a 
sufficient remaining subsidized usage period to complete the program if 
they received Direct Subsidized Loans to complete the prerequisite 
degree or coursework. The Department decided to create a narrowly 
tailored special rule to address the concern for these specialized 
programs. Under these final regulations, associate degree programs that 
are designed specifically to confer a more specialized credential after 
completion of postsecondary coursework and that are equivalent in 
length to a baccalaureate degree program are allowed to report a 
program length of four years. Qualifying programs must be selective 
admission programs that admit students based on competitive criteria 
such as grade point average, entrance exam scores, written essays, 
recommendation letters and class rank, or other factors and be in a 
profession that requires licensure or certification by the State.
    Taken together, the Department estimates that the changes in these 
final regulations will not have a significant net budget impact. 
Rounding up or down to the nearest tenth instead of down to the nearest 
quarter may result in some students losing Direct Subsidized Loan 
eligibility or interest subsidy absent the revised calculations. 
However, the other changes in these final regulations (the proration 
for part-time, part-year borrowers who receive the full annual loan 
limit or the special rule for selective admission or bachelor's degree 
completion programs)

[[Page 3119]]

will result in the retention of loan eligibility or interest subsidy 
for some borrowers who might have otherwise lost such eligibility. We 
expect the number of students affected by these changes to be 
insubstantial. For example, the Department estimates that less than two 
percent of part-time, part-year borrowers receive the full annual loan 
limit. In total, these changes are offsetting and do not have a 
significant effect on the net budget impact detailed in the interim 
final regulations.
    The IFR described the Department's consideration of multiple 
approaches to the treatment of preparatory coursework and teacher 
certification coursework. In the case of preparatory coursework, the 
Department wanted to ensure that the regulations did not have a 
significant negative impact on borrowers who need this coursework to 
prepare for undergraduate studies. Research shows that preparatory 
coursework only has a modest effect on the length of time that students 
take to graduate.\3\ For this reason, we declined to treat these 
courses as stand-alone programs for the purposes of subsidized loan 
eligibility. In this preamble, the Department clarified that the 12-
month limitation related to preparatory coursework is on Direct 
Subsidized Loan receipt and not enrollment. With respect to teacher 
certification coursework, because many States require teachers to 
obtain such certificates as a prerequisite for teaching or as a 
requirement to continue teaching, the Department concluded that these 
programs should be treated as stand-alone programs for purposes of the 
150 percent limit and that the borrower's eligibility for subsidized 
loans will not be affected by periods in which the borrower received 
Direct Subsidized Loans for earlier undergraduate programs. However, to 
be consistent with the overall intent of the 150 percent limitation, we 
provided in the IFR that teacher certification coursework is a 
continuation of any previous teacher certification coursework for the 
purpose of subsidized loan eligibility. No changes were made to this 
policy in response to comments.
---------------------------------------------------------------------------

    \3\ Paul Attewell et al., ``New Evidence on College 
Remediation,'' Journal of Higher Education 77, no. 5 (October 2006): 
886-924.
---------------------------------------------------------------------------

Accounting Statement

    As required by OMB Circular A-4 (available at www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf), in the 
following table we have prepared an accounting statement showing the 
classification of the expenditures associated with the provisions of 
the IFR and these final regulations. This table provides our best 
estimate of the changes in annual monetized transfers as a result of 
the IFR and final regulations. Expenditures are classified as transfers 
between affected student loan borrowers and the Federal government and 
the IHEs' cost of compliance with the paperwork requirements.

      Accounting Statement Classification of Estimated Expenditures
                              [in millions]
------------------------------------------------------------------------
                Category                      Amount or description
------------------------------------------------------------------------
Annual Benefits........................  Not quantified. The 150% limit
                                          may encourage borrowers' on-
                                          time completion of programs.
Annual Costs...........................  $5.21 (7%).
                                         $5.31 (3%).
                                         Cost of Paperwork Compliance.
Annualized Monetized Transfers           $212.8 (7%).
 associated with 150 percent limit as    $237.6 (3%).
 defined in the IFR as compared to a
 pre-statutory baseline.
From Whom To Whom?.....................  From affected student loan
                                          borrowers to the Federal
                                          government.
Annualized Monetized Transfers           $690.8 (7%).
 associated with the extension of the    $619.9 (3%). *
 3.4% interest rate to Direct
 Subsidized loans first disbursed on or
 after July 1, 2012 and before July 1,
 2013. The baseline is the IFR.
From Whom To Whom?.....................  From the Federal government to
                                          affected student loan
                                          borrowers.
------------------------------------------------------------------------
* These figures reflect the annual monetized transfers associated with
  the estimated $3.957 billion in net budget savings that will be
  generated by the amendments in the IFR and these final regulations and
  will contribute to paying for the extension of the 3.4 percent
  interest rate on Direct Subsidized Loans made between July 1, 2012,
  and June 30, 2013, which is estimated to cost $5.6 billion in outlays
  over the 2012 to 2022 loan cohorts.

Regulatory Flexibility Act Certification

    In the IFR, published May 16, 2013, the Department analyzed the 
effect of the regulations on small entities and asked for comments 
about the analysis. The estimated burden on small entities from the 
requirements in the IFR is summarized in Table 1.

                              Table 1--Estimated Paperwork Burden on Small Entities
----------------------------------------------------------------------------------------------------------------
                                                                                                     Cost per
                                          Reg section        OMB control No.           Cost         institution
----------------------------------------------------------------------------------------------------------------
COD reporting of enrollment status,         685.301(e)  OMB 1845-NEW1...........        $852,234            $195
 program length, teacher preparation
 programs, preparatory coursework, and
 CIP code.
NSLDS reporting.......................      685.309(b)  OMB 1845-NEW1...........          65,953              15
Additional entrance and exit                   685.304  OMB 1845-NEW1...........         268,566              62
 counseling requirements.
----------------------------------------------------------------------------------------------------------------

    We did not receive any comments on our regulatory flexibility 
analysis in the IFR, and did not make any changes in the final 
regulations that affected this analysis. Therefore, the estimated

[[Page 3120]]

burden analyzed in the IFR remains the same.

Paperwork Reduction Act of 1995

    We received no comments on the Paperwork Reduction Act portion of 
the IFR and none of the changes to the regulation increase or decrease 
the burden associated with the regulation. OMB initially approved the 
collection of information necessary to implement the 150 percent limit 
under OMB control number 1845-0116 on an emergency basis, which limited 
the collection's authority to six months (the emergency approval of the 
collection expires on December 31, 2013). The collection is currently 
undergoing full Paperwork Reduction Act review, with the attendant 60- 
and 30-day comment periods.

Intergovernmental Review

    This program is not subject to Executive Order 12372 and the 
regulations in 34 CFR part 79.

Assessment of Educational Impact

    In the IFR we requested comments on whether the regulations would 
require transmission of information that any other agency or authority 
of the United States gathers or makes available.
    Based on the response to this request and our review, we have 
determined that these final regulations do not require transmission of 
information that any other agency or authority of the United States 
gathers or makes available.
    Accessible Format: Individuals with disabilities can obtain this 
document in an accessible format (e.g., braille, large print, 
audiotape, or compact disc) on request to the program contact person 
listed under FOR FURTHER INFORMATION CONTACT.
    Electronic Access to This Document: The official version of this 
document is the document published in the Federal Register. Free 
Internet access to the official edition of the Federal Register and the 
Code of Federal Regulations is available via the Federal Digital System 
at: www.gpo.gov/fdsys. At this site you can view this document, as well 
as all other documents of this Department published in the Federal 
Register, in text or Adobe Portable Document Format (PDF). To use PDF, 
you must have Adobe Acrobat Reader, which is available free at the 
site.
    You may also access documents of the Department published in the 
Federal Register by using the article search feature at: 
www.federalregister.gov. Specifically, through the advanced search 
feature at this site, you can limit your search to documents published 
by the Department.
    You may also view this document in text or PDF at the following 
site: www.ifap.ed.gov.

(Catalog of Federal Domestic Assistance Number: 84.268 William D. 
Ford Direct loan Program)

List of Subjects in 34 CFR Part 685

    Colleges and universities, Education loan programs--education, 
Student aid.

    Dated: January 14, 2014.
Arne Duncan,
Secretary of Education.
    For the reasons discussed in the preamble, the Secretary amends 
part 685 of title 34 of the Code of Federal Regulations as follows:

PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM

0
1. The authority citation for part 685 continues to read as follows:

    Authority:  20 U.S.C. 1070g, 1087a, et seq., unless otherwise 
noted.


0
2. Section 685.200 is amended by:
0
A. In paragraph (f)(1)(iii), removing the words ``down to the nearest 
quarter'' and adding, in their place, the words ``to the nearest 
tenth''.
0
B. In the formula for calculating a subsidized usage period in 
paragraph (f)(1)(iii), adding the words ``for annual loan limit 
purposes'' after the words ``days in the academic year''.
0
C. In paragraph (f)(4)(i), adding the word ``full'' before the words 
``annual loan limit''.
0
D. In paragraph (f)(4)(ii), removing the words and punctuation ``Except 
as provided in paragraph (f)(4)(i) of this section, for'' and adding 
``For'' in their place.
0
E. Adding paragraph (f)(8).
    The addition reads as follows:


Sec.  685.200  Borrower eligibility.

* * * * *
    (f) * * *
    (8) Special admission degree programs. (i) For purposes of 
calculating the maximum eligibility period, a bachelor's degree program 
that requires an associate degree or the successful completion of at 
least two years of postsecondary coursework as a prerequisite for 
admission has a program length of four years.
    (ii) For purposes of calculating the maximum eligibility period, a 
selective admission associate degree program that requires an associate 
degree or the successful completion of at least two years of 
postsecondary coursework as a prerequisite for admission has a program 
length of four years. For purposes of this paragraph (f)(8)(ii), a 
selective admission associate degree program--
    (A) Admits only a selected number of applicants based on additional 
competitive criteria which may include entrance exam scores, class 
rank, grade point average, written essays, or recommendation letters; 
and
    (B) Provides the academic qualifications necessary for a profession 
that requires licensure or a certification by the State.
* * * * *
[FR Doc. 2014-00928 Filed 1-16-14; 8:45 am]
BILLING CODE 4000-01-P