[Federal Register Volume 73, Number 206 (Thursday, October 23, 2008)]
[Rules and Regulations]
[Pages 63231-63259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-24922]



[[Page 63231]]

-----------------------------------------------------------------------

Part II





Department of Education





-----------------------------------------------------------------------



34 CFR Parts 674, 682, and 685



Federal Perkins Loan Program, Federal Family Education Loan Program, 
and William D. Ford Federal Direct Loan Program; Final Rule

Federal Register / Vol. 73, No. 206 / Thursday, October 23, 2008 / 
Rules and Regulations

[[Page 63232]]


-----------------------------------------------------------------------

DEPARTMENT OF EDUCATION

34 CFR Parts 674, 682, and 685

RIN 1840-AC94
[Docket ID ED-2008-OPE-0009]


Federal Perkins Loan Program, Federal Family Education Loan 
Program, and William D. Ford Federal Direct Loan Program

AGENCY: Office of Postsecondary Education, Department of Education.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: The Secretary amends the Federal Perkins Loan (Perkins Loan) 
Program, Federal Family Education Loan (FFEL) Program, and William D. 
Ford Federal Direct Loan (Direct Loan) Program regulations to implement 
provisions of the College Cost Reduction and Access Act of 2008 (CCRAA) 
(Pub. L. 110-84), including the statutory provisions that establish the 
Income-Based Repayment (IBR) plan and the Public Service Loan 
Forgiveness Program.

DATES: Effective Date: These regulations are effective July 1, 2009.
     Implementation date: The Secretary has determined, in accordance 
with section 482(c)(2)(A) of the Higher Education Act of 1965, as 
amended (HEA) (20 U.S.C. 1089(c)(2)(A)), that institutions, lenders, 
guaranty agencies, and loan servicers that administer the Perkins Loan, 
FFEL and Direct Loan programs, may, at their discretion, choose to 
implement the new and amended provisions of Sec. Sec.  674.34, 682.210, 
682.211, and 685.204 governing the military service and post-active 
duty student deferments, including related forbearance provisions 
contained in these final regulations on or after November 1, 2008. For 
further information, see the section entitled Implementation Date of 
These Regulations in the SUPPLEMENTARY INFORMATION section of this 
preamble.

FOR FURTHER INFORMATION CONTACT: For information related to the IBR 
plan, Pamela Moran or John Kolotos. Telephone: (202) 502-7732 or (202) 
502-7762 or via the Internet at: [email protected] or 
[email protected]. For information related to the Public Service Loan 
Forgiveness Program, Nikki Harris. Telephone: (202) 219-7050 or via the 
Internet at: [email protected]. For information related to the 
economic hardship deferment, the military service deferment, or the 
post-active duty student deferment, Vanessa Freeman. Telephone: (202) 
502-7523 or via the Internet at: Vanessa [email protected]. For 
information related to not-for-profit loan holders, Pamela Moran. 
Telephone: (202) 502-7732 or via the Internet at: [email protected].
    If you use a telecommunications device for the deaf (TDD), call the 
Federal Relay Service (FRS), toll free, at 1-800-877-8339.
    Individuals with disabilities can obtain this document in an 
alternative format (e.g., Braille, large print, audiotape, or computer 
diskette) on request to the contact person listed in this section.

SUPPLEMENTARY INFORMATION: On July 1, 2008, the Secretary published a 
notice of proposed rulemaking (NPRM) for the Perkins Loan, FFEL, and 
Direct Loan Programs in the Federal Register (73 FR 37694).
    In the preamble to the NPRM, the Secretary discussed on pages 37695 
through 37697 the major regulations proposed in that document to 
implement provisions of the CCRAA, including the following:
     Amending Sec. Sec.  674.34 and 682.210, which govern 
economic hardship deferments in the Perkins Loan and FFEL programs to 
define the term ``family size'', clarify that the poverty guidelines 
used in determining economic hardship are issued by the U.S. Department 
of Health and Human Services (HHS), provide that the poverty guideline 
used for a borrower who is not a resident of a State identified in the 
poverty guidelines is the poverty guideline for the relevant family 
size for the 48 contiguous States, and eliminate the economic hardship 
deferment categories based on the 20/220 provisions.
     Amending Sec. Sec.  674.34(i)(3), 682.210(u)(3), and 
685.204(f)(1)(ii) to clarify that a borrower's eligibility for a post-
active duty student deferment terminates if the borrower returns to 
enrolled student status on at least a half-time basis, and that a 
borrower returning from active duty who is in a grace period is not 
required to waive the grace period to use the 13-month post-active duty 
student deferment.
     Amending Sec. Sec.  674.34(i)(2)(i) and (ii), 
682.210(u)(2)(i) and (ii), and 685.204(f)(2)(i) and (ii) to clarify 
that, for purposes of the post-active duty student deferment, active 
State duty for members of the National Guard includes both active State 
duty under which a Governor activates members of the National Guard 
under State statute or policy and the activities are paid for with 
State funds, and active State duty under which a governor, with the 
approval of the President or the U.S. Secretary of Defense, activates 
members of the National Guard and the activities are paid for with 
Federal funds.
     Amending Sec. Sec.  674.34(i)(2)(iv), 682.210(u)(2)(iv), 
and 685.204(f)(2)(iv) to specify that active duty for purposes of the 
active duty deferment does not include a borrower who is serving full-
time in a permanent position with the National Guard, unless the 
borrower is reassigned as part of a call-up to active duty service.
     Amending Sec. Sec.  674.34(h)(7), 682.210(t)(9), and 
685.204(e)(7) to authorize loan holders to grant a military service 
deferment to an otherwise eligible borrower for an initial deferment 
period not to exceed 12 months based on a request from either the 
borrower or the borrower's representative.
     Amending Sec. Sec.  674.34(i)(4), 682.210(u)(4), and 
685.214(f)(4) to specify that if a borrower is eligible for both the 
180-day military service deferment following the borrower's 
demobilization, and the 13-month post-active duty student deferment, 
the borrower's eligibility for these separate deferments runs 
concurrently.
     Amending Sec.  682.211(h) to require a FFEL loan holder to 
grant a mandatory forbearance to a borrower who is called to active 
State duty for more than 30 days and who does not qualify for a 
military service deferment during the active State duty service period, 
but who qualifies for the post-active duty student deferment.
     Adding new Sec. Sec.  682.215(a) and 685.221(a) to 
incorporate the statutory definition of the term partial financial 
hardship, and define related terms including Adjusted Gross Income 
(AGI), family size, poverty guideline, and eligible loan.
     Adding new Sec. Sec.  682.215(b) and 685.221(b) to 
incorporate the statutory formula for calculating a monthly payment 
under the IBR plan, adjusting that payment when the borrower's loans 
are held by more than one loan holder, and establishing minimum payment 
amounts.
     Adding new Sec. Sec.  682.215(b), 682.215(c), 685.221(b), 
and 685.221(c), and amending Sec.  682.300(b) to incorporate the 
statutory provisions requiring IBR payments to be applied first toward 
interest due on the loan, next toward any fees, and then to the loan 
principal, and to provide that if the borrower's payment is 
insufficient to pay accrued interest, the Department pays (or on a 
Direct Loan, does not charge) the accrued interest on an eligible 
subsidized loan for a period of three consecutive years from the date 
the borrower initially began repayment on each loan under the IBR plan.

[[Page 63233]]

     Adding new Sec. Sec.  682.215(d) and 685.221(d) to 
establish the terms and repayment amounts for a borrower who no longer 
has a partial financial hardship but wants to continue making income-
based payments under IBR, or for a borrower who wants to leave the IBR 
plan entirely.
     Adding new Sec. Sec.  682.215(e) and 685.221(e) to 
establish the procedures a loan holder must follow to determine 
annually whether a borrower has a partial financial hardship by 
verifying the borrower's AGI and family size. If the borrower does not 
provide family size information, the loan holder uses a family size of 
one.
     Adding new Sec. Sec.  682.215(f) and 685.221(f) to 
establish the conditions that a borrower must satisfy to qualify for 
loan forgiveness under IBR, establish how a loan holder determines 
whether a borrower made qualifying payments, and provide that the 
Department will repay or cancel the loan after 25 years if the borrower 
makes qualifying payments and meets certain requirements.
     Amending Sec.  682.302(a) to provide for a separate 
calculation of the special allowance rate for the unpaid accrued 
interest on a loan in repayment under the IBR plan.
     Amending Sec.  685.209(c) to identify the periods 
specified in section 455(e) of the HEA that count toward the 25-year 
repayment requirement under the Income Contingent Repayment (ICR) plan, 
and to provide that repayment periods will continue to count for 
certain borrowers currently in ICR.
     Amending Sec.  682.302(f) to incorporate statutory changes 
to the definition of not-for-profit holder and to describe the 
circumstances in which a State or non-profit entity is deemed to be 
owned or controlled by a for-profit entity.
     Adding a new Sec.  685.219(c) to incorporate the statutory 
requirements that a borrower must satisfy to qualify for public service 
loan forgiveness and provide that a borrower in an AmeriCorps position 
may make qualifying payments by using his or her AmeriCorps education 
award.
     Adding a new Sec.  685.219(b) to define several terms 
including employee, full-time, public interest law, and public service 
organization, needed to implement the public service loan forgiveness 
program.
     Adding a new Sec.  685.219(d) and (e) to provide that the 
Department will cancel any balance remaining on a loan for a borrower 
who works in a qualifying public service job and who makes 120 
qualifying payments while employed in such a job and requests loan 
forgiveness on a form provided by the Department.
     Amending Sec. Sec.  682.201 and 685.220 to provide that a 
FFEL borrower may obtain a Direct Consolidation loan for the purpose of 
using the public service loan forgiveness program.
    There are no significant differences between the NPRM and these 
final regulations resulting from public comments.
    In addition to the changes necessary to implement provisions of the 
CCRAA, these final regulations also incorporate certain changes made to 
the HEA by the Higher Education Opportunity Act (HEOA) (Pub. L. 110-
315) enacted on August 14, 2008. These changes are:
     Amending Sec. Sec.  682.215(a)(2) and 685.221(a)(2) to 
exclude defaulted loans from the category of eligible loans for IBR 
repayment and deleting the proposed amendments to Sec. Sec.  
682.215(g)(7), 682.410(b)(5)(vi)(G), and (b)(9)(i)(D) that regulated a 
guaranty agency's consideration of a defaulted loan for IBR and the 
reimbursement to a guaranty agency on a defaulted loan that was 
forgiven under IBR.
     Amending the definition of Public Service Organization in 
Sec.  682.219 for the purpose of the Public Service Loan Forgiveness 
program to replace in paragraph (5)(i) the term ``public child care'' 
with the phrase ``early childhood education (including licensed or 
regulated child care, Head Start, and State-funded pre-kindergarten)''; 
and to add in paragraph (5)(i) a parenthetical statement after ``public 
health'' that reads ``(including nurses, nurse practitioners, nurses in 
a clinical setting and full-time professionals engaged in health care 
practitioner occupations and health care support occupations as such 
terms are defined by the Bureau of Labor Statistics).''
     Amending the definition of Government employee in Sec.  
682.219 for the purpose of the Public Service Loan Forgiveness program 
to exclude members of the U.S. Congress.
    Because these amendments merely implement statutory changes made to 
the HEA by the HEOA, we do not discuss them in the Analysis of Comments 
and Changes section.

Waiver of Proposed Rulemaking and Negotiated Rulemaking Regulations 
Implementing the HEOA

    Under the Administrative Procedure Act (APA) (5 U.S.C. 553), the 
Department is generally required to publish an NPRM 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, 
the APA provides that an agency is not required to conduct notice-and-
comment 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 APA.
    Although the regulations implementing the HEOA are subject to the 
APA's notice-and-comment and the HEA's negotiated rulemaking 
requirements, the Secretary has determined that it is unnecessary to 
conduct negotiated rulemaking or notice-and-comment rulemaking on the 
limited regulatory changes. These changes simply amend the Department's 
regulations to reflect statutory changes made by the HEOA that are 
already effective. The Secretary does not have discretion as to whether 
or how to implement these changes.

Implementation Date of These Regulations

    Section 482(c) of the HEA requires that regulations affecting 
programs under title IV of the HEA be published in final form by 
November 1 prior to the start of the award year (July 1) to which they 
apply. However, that section also permits the Secretary to designate 
any regulation as one that an entity subject to the regulation may 
choose to implement earlier and the conditions under which the entity 
may implement the provisions early.
    Consistent with the intent of this regulatory effort to strengthen 
and improve the administration of the title IV, HEA programs, the 
Secretary is using the authority granted her under section 482(c) of 
the HEA to designate the new and amended provisions in Sec. Sec.  
674.34, 682.210, 682.211, and 685.204 governing the military service 
deferment and post-active duty student deferment, including related 
forbearance provisions for early implementation at the discretion of 
each institution, lender, guaranty agency, or servicer, as appropriate.

Analysis of Comments and Changes

    Except as noted above in regard to the limited regulations 
implementing provisions of the HEOA, the regulations in this document 
were developed

[[Page 63234]]

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 1, 2008, 
in conformance with the consensus of the negotiated rulemaking 
committee. Under the committee's protocols, consensus meant that no 
member of the committee dissented from the agreed-upon language. The 
Secretary invited comments on the proposed regulations by August 15. 
More than 1700 parties submitted comments, many 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, non-substantive changes.

Economic Hardship Deferment (Sec. Sec.  674.34 and 682.210)

    Comment: Many commenters objected to the proposed elimination of 
what has been referred to as the ``20/220'' debt-to-income eligibility 
criterion for an economic hardship deferment in the title IV student 
loan programs. Medical and dental school students and residents, 
medical and dental school administrators, and major medical and dental 
associations voiced particular concern about the impact of the 
elimination of the 20/220 debt-to-income test on medical and dental 
interns and residents with high debt burdens and limited income during 
several years of required additional training that coincide with the 
borrower's first few years of loan repayment. The commenters believed 
that the impact of eliminating this criterion would be particularly 
acute for those borrowers pursuing their additional training in urban 
areas with high living costs. The commenters urged the Secretary to use 
the discretion provided to her under section 435(o)(1)(B) of the HEA to 
establish additional criteria for economic hardship deferments to 
either reinstate the 20/220 test permanently or to provide an 
equivalent loan deferment funding mechanism to help these types of 
borrowers. The commenters contended that doing so would enable these 
borrowers to continue to have the option to postpone loan payments. The 
commenters noted that the only other option for these borrowers would 
be to request a period of forbearance during which interest would be 
capitalized during this crucial period of training.
    Several commenters argued that the loss of this repayment option 
will deter new physicians from pursuing primary care and research 
specialties, pursuing a career with the public health service, or 
practicing medicine in underserved areas, in lieu of more lucrative 
specialties.
    A commenter who represents participating Federal Perkins Loan 
schools and loan servicers argued that the rationale for eliminating 
the 20/220 economic hardship category in the FFEL and Direct Loan 
Programs (i.e., the availability of the new IBR plan and program costs) 
does not apply to the Federal Perkins Loan program. The commenter 
believed that there are no Federal costs associated with deferments 
granted in the Federal Perkins Loan program and noted that IBR is not 
available to Perkins Loan borrowers except through loan consolidation 
in the FFEL or Direct Loan Programs, which also results in the loss to 
the borrower of several Federal Perkins loan benefits. Consequently, 
the commenter asked the Department to retain the 20/220 debt-to-income 
criterion for an economic hardship deferment in the Federal Perkins 
Loan Program regulations.
    A few commenters recommended that the definition of ``family size'' 
for the purpose of the economic hardship deferment be revised to 
specify the period of time a borrower must provide support to ``other 
individuals'' in order to include those individuals in the borrower's 
family size. To ensure consistent application of the definition of 
``family size'' in the regulations for IBR, as the Secretary indicates 
she intended, the commenters recommended that the prescribed period be 
specified to be ``the year the borrower certifies family size.'' 
Additionally, the same commenters recommended that the definition of 
``family size'' be further modified for both IBR and economic hardship 
deferment purposes to include the borrower's unborn children who will 
be born during the year in which the borrower will be certifying family 
size and for whom the borrower will be providing more than half their 
support to ensure consistency with the definition of ``household size'' 
used in the Free Application for Federal Student Aid (FAFSA).
    An organization that includes FFEL Program lenders and loan 
servicers noted that the July 1, 2009, effective date for the 
elimination of the 20/220 debt-to-income economic hardship criterion 
did not appear to permit a lender to grant a deferment on or after July 
1, 2009, to an eligible borrower for a retroactive deferment period 
that began prior to July 1, 2009, as would normally be the case for 
deferments granted under the FFEL Program. The commenter requested that 
the Department clarify the implementation of the effective date to 
allow a lender to grant such a deferment to an eligible borrower after 
July 1, 2009, for up to a 12-month period for a deferment period that 
starts prior to that date.
    Discussion: The Department did not eliminate the 20/220 rule in the 
final regulations published on November 1, 2007, (72 FR 61959) so that 
borrowers could temporarily continue to qualify for an economic 
hardship deferment on that basis and to ease the transition for 
affected borrowers until the newly created IBR plan becomes available 
on July 1, 2009. Congress eliminated the 20/220 rule from the HEA and 
effectively replaced it with the new IBR plan, which will provide 
assistance to more borrowers with high levels of debt over a much 
longer period of limited earnings than the economic hardship deferment.
    The IBR plan does not provide for postponing all borrower payments 
for a period of time like a deferment. It provides for reduced payments 
when a borrower can demonstrate partial financial hardship. Depending 
upon the borrower's circumstances, IBR payments may be less than 
accrued interest and some borrowers may not be required to make a 
payment. A borrower has a partial financial hardship if the annual 
amount due on all of his or her eligible loans, as calculated under a 
standard repayment plan based on a 10-year repayment period, is more 
than 15 percent of the difference between the borrower's AGI and 150 
percent of the poverty line income for the borrower's family size. If 
the borrower's monthly payment amount is not sufficient to cover the 
accruing interest on the borrower's subsidized Stafford Loans (or on 
the portion of the borrower's Consolidation Loan that represents 
subsidized Stafford Loans), the

[[Page 63235]]

Secretary pays the unpaid accrued interest for a period of up to three 
consecutive years from the point the borrower entered the IBR plan on 
the loan. Any unpaid accruing interest on the same borrower's 
unsubsidized Stafford Loans would be capitalized less frequently under 
IBR than it otherwise would be under either an economic hardship 
deferment or during a forbearance period. The Department believes that 
this plan will be advantageous to many borrowers, including borrowers 
who would have been eligible for the economic hardship deferment under 
the 20/220 criterion.
    The Department disagrees with the commenter's recommendation that 
the 20/220 economic hardship eligibility criterion be retained in the 
Federal Perkins Loan Program. The commenter is correct that IBR is not 
available to Federal Perkins Loan borrowers unless they consolidate 
their Perkins loans into a FFEL or Direct Consolidation Loan and that a 
Perkins Loan borrower loses the various employment-related Perkins Loan 
cancellation opportunities and other benefits by consolidating. Perkins 
Loan holders, however, may provide low-income borrowers with relief 
from high payments under Sec.  674.33(c)(2) by extending the borrower's 
repayment period for up to an additional 10 years for low-income 
individuals, which will, in most cases, result in reduced monthly 
payment amounts.
    The Department disagrees with the contention that there would be no 
Federal costs in keeping the 20/220 provision for the Federal Perkins 
Loan Program. The Perkins loan fund is a Federal asset and, during 
deferment periods, the fund loses both borrower principal payments and 
interest that would otherwise accrue and be paid by the borrower.
    The Department also does not believe it is appropriate to continue 
the 20/220 economic hardship criterion only for borrowers in the 
Perkins Loan Program, the title IV loan program with the lowest average 
indebtedness and the most generous repayment terms. Finally, the 
Department believes that since Perkins Loan borrowers generally also 
have FFEL or Direct Loans, the regulations that govern the economic 
hardship deferment should be consistent across all the title IV student 
loan programs.
    With regard to the comments on the definition of ``family size,'' 
we disagree that for purposes of determining family size the period a 
borrower must provide support to other individuals is the same period 
as that specified for purposes of IBR. Borrowers requesting a deferment 
are certifying to their eligibility for the period for which they are 
requesting the deferment, and a borrower's family size is relevant for 
that period. Under the IBR plan, borrowers certify to their family size 
so that the loan holder can determine a borrower's eligibility for the 
year the borrower elects the plan, and for each subsequent year that 
the borrower remains on the plan. The period for which a borrower may 
request a deferment will often differ from the initial and each 
subsequent year a borrower is repaying under the IBR plan. However, we 
agree that the time period for which the borrower certifies family size 
for purposes of the IBR plan should be clearer in the regulations. We 
also agree that an unborn child may be included if that child will be 
born during the year the borrower certifies family size or for the 
period the borrower requests an economic hardship deferment.
    The Department agrees that a loan holder may grant an economic 
hardship deferment under the 20/220 criterion to an eligible borrower 
who requests a deferment after July 1, 2009, for a deferment period 
that began prior to July 1, 2009, and is for a period not to exceed 12 
months from that pre-July 1, 2009, start date. No additional economic 
hardship deferment periods may be granted based on that criterion to 
the borrower at the conclusion of that deferment period, or for any 
deferment request on or after July 1, 2009, for a deferment period that 
begins on or after that date.
    Changes: We have added the phrase ``at the time the borrower 
certifies family size'' to the definition of ``family size'' in 
Sec. Sec.  682.215(a)(3) and 685.221(a)(3) for purposes of the IBR 
plan. We have also amended the definition of family size for purposes 
of the economic hardship deferment and the IBR plan in Sec. Sec.  
674.34(e)(8)(ii), 682.210(s)(6)(ix), 682.215(a)(3), and 685.221(a)(3) 
to clarify that an unborn child is included if that child will be born 
in the year the borrower certifies family size.

Military Service Deferment and Post-Active Duty Student Deferment 
(Sec. Sec.  674.34, 682.210, 682.211, and 682.204)

    Comment: One commenter asked that we clarify that all borrowers who 
return to school on at least a half-time basis after being demobilized 
from active duty military service, lose the ability to defer payments 
via the post-active duty student deferment. The commenter believed that 
the reference in the proposed regulations to ``the conclusion of the 
borrower's active duty military service and any applicable grace 
period'' could create a loophole for borrowers who re-enroll after 
their date of demobilization but prior to the end of their grace 
period. The commenter believes that this language would unintentionally 
allow ineligible borrowers to receive deferments.
    Another commenter asked the Department to clarify that the 
mandatory forbearance described in Sec.  682.211(h)(2)(iii) does not 
cover National Guard members who are called to Federal active duty if 
the active duty does not fall under a war, a military operation as 
defined in 10 U.S.C. 101(a)(13), or a national emergency declared by 
the President due to a terrorist attack. Another commenter also 
recommended that the same mandatory forbearance provision be amended to 
clarify that the forbearance would begin after the borrower ceases at 
least half-time enrollment.
    Discussion: The reference in the proposed regulations governing the 
post-active duty student deferment to the expiration of the borrower's 
applicable grace period was not intended to provide a borrower who 
returns to school after being demobilized, but before using the full 
grace period on a loan, with an opportunity to retain unlimited 
eligibility for the post-active duty student deferment after completing 
school or dropping to less than half-time enrollment, which could be 
many years later. Under these final regulations, all borrowers who 
return to at least half-time enrollment following demobilization will 
lose eligibility for the deferment. Eligible borrowers who do not 
return to school after being demobilized, however, will receive their 
full grace period on a loan before the 13-month post-active duty 
student deferment period would begin.
    With regard to the comment on clarifying the applicability of 
mandatory forbearance, we note that the provision in Sec.  
682.211(h)(2)(iii) mentioned by the commenter only applies to members 
of the National Guard who qualify for a post-active duty student 
deferment. A member of the National Guard cannot qualify for a post-
active duty student deferment for Federal duty. A member of the 
National Guard may only qualify for the post-active duty student 
deferment for active State duty. The active State duty may be paid for 
with State funds, as provided in Sec.  682.210(u)(2)(i), or with 
Federal funds, as provided in Sec.  682.210(u)(2)(ii). But, in both 
cases, the member of the National Guard is on active State duty, not on 
Federal duty.
    A member of the National Guard on Federal duty is on ``full-time 
National Guard duty'', as that term is defined in

[[Page 63236]]

10 U.S.C. 101(d)(5). The post-active duty student deferment only 
applies to borrowers on active duty as defined in 10 U.S.C. 101(d)(1). 
The definition of ``active duty'' in section 101(d)(1) explicitly 
excludes ``full-time National Guard duty''. Therefore, a borrower on 
``full-time National Guard duty'' may not qualify for a post-active 
duty student deferment, or for the mandatory forbearance specified in 
Sec.  682.211(h)(2)(iii).
    A borrower on ``full-time National Guard duty'' may qualify for a 
military service deferment, if the borrower meets the other eligibility 
criteria for the military service deferment. A forbearance covering the 
period of active duty military service is not necessary for a borrower 
who qualifies for a military service deferment.
    We agree with the commenter that the mandatory forbearance period 
would begin only after the borrower ceases at least half-time 
enrollment.
     Changes: Section 682.211(h)(2)(iii)(B) has been amended to specify 
that the mandatory forbearance period for a FFEL loan in repayment 
begins on the day after the borrower ceases enrollment on at least a 
half-time basis.

Income-Based Repayment (IBR) Plan

General Comments

    Comment: A couple of commenters recommended that a borrower's total 
student loan debt, including private education loans and the Federal 
student loan debt held by all the borrower's loan holders, be 
considered when calculating the borrower's maximum payment amount under 
the IBR plan. Another commenter asked that the Department provide 
reduced interest rates, or forgiveness of a portion of the loan 
principal, during periods of financial hardship when a borrower is 
making payments. This commenter also recommended that lenders use a 
standardized format to explain the determination of the payment amount 
under IBR to the borrower, so that both the calculation and the source 
of information can be verified.
    One commenter recommended that we include illustrations that 
demonstrate a borrower's successful compliance or technical 
noncompliance with the IBR requirements in the final regulations.
    A few commenters noted that a lender may use alternative 
documentation to verify the borrower's income when the borrower's AGI 
is not available, or the loan holder suspects that the AGI does not 
accurately reflect the borrower's current income. These commenters 
recommended that the borrower, as well as the lender, have the option 
to provide alternative documentation in place of the AGI. Another 
commenter recommended that we not use AGI at all, but rely on current 
year income instead.
    Another commenter noted that the IRS disclosure form that will be 
used to determine a borrower's AGI permits the IRS to provide AGI and 
``other'' tax information to the lender. This commenter recommended 
that ``other'' be removed from the regulations, so that extraneous tax 
information is not provided to lenders.
    Discussion: The HEA provisions governing IBR do not authorize the 
use of non-Federal education debt in determining whether a borrower has 
a partial financial hardship or in calculating IBR payment amounts. Nor 
does the law provide for reduced interest rates for borrowers in IBR, 
or for loan forgiveness before the borrower has made 25 years of 
payments. The Secretary does not have the authority to make these 
changes to the IBR plan. However, as specified in Sec.  
682.215(b)(1)(i), loan holders must take into account a borrower's 
eligible Federal student loans held by all of the borrower's loan 
holders when determining monthly payment amounts.
    The Department thanks the commenter for the recommendation that 
lenders use a standardized format to provide IBR payment amount 
information to a borrower. This is an operational issue and the 
Department will consider the commenter's recommendation when developing 
operational guidance to implement the IBR plan.
    The Department does not generally include illustrations in its 
regulations, but will consider providing examples and illustrations, as 
necessary, in other operational guidance, training materials, and 
consumer information developed to implement IBR.
    The IBR provisions of the HEA require the use of the borrower's AGI 
to determine whether a borrower has a partial financial hardship. The 
Department believes that using AGI from the borrower's most recent tax 
return is the most accurate method to document and verify the 
borrower's annual income for the purpose of calculating IBR payment 
amounts. However, we recognize that, in some cases a tax return AGI 
will not be available, or will not accurately reflect the borrower's 
current financial circumstances. Therefore, the regulations allow a 
loan holder to use alternative documentation of the borrower's income 
under those circumstances. It is up to the loan holder to decide if it 
is appropriate to use alternative documentation. However, a borrower 
may alert the loan holder to any changed financial circumstances that 
may support the use of alternate documentation.
    The consent form the borrower signs is an IRS form, not a 
Department of Education form. The IRS consent form is used for many 
purposes unrelated to the IBR plan. The ``other'' tax information 
referenced in the regulations includes any other tax information 
covered by the standard IRS form. Tax information covered by the 
consent form but not needed for IBR determinations would not need to be 
tracked or captured in any way by the loan holder.
    Changes: None.

Electing IBR

    Comment: Several commenters opined that, under the proposed 
regulations, low-income borrowers who have partially paid the principal 
on their loans and have less than 10 years remaining to repay their 
loans would not qualify for lower payments under the IBR plan even if 
the borrowers' loan payments were high. The commenters argued that 
these borrowers would not be considered to have partial financial 
hardships based on a 10-year repayment of their current loan balance. 
The commenters recommended that the regulations be changed to use the 
borrowers' current payments to determine if the borrowers would be 
eligible for lower IBR payments. They contend that this would avoid 
penalizing borrowers who made payments on their loans, but who might 
benefit from the IBR plan.
    Discussion: The commenters misinterpreted the proposed regulations, 
which reflect the statutory requirement by providing that a borrower 
may elect the IBR plan only if the borrower has a partial financial 
hardship. In determining whether a borrower has a partial financial 
hardship, the loan holder compares two amounts: (1) The annual amount a 
borrower would pay, at the time the borrower initially entered 
repayment, on the total outstanding balance of his or her loans, based 
on a standard repayment over a 10-year repayment period; and (2) the 
annual amount the borrower would pay under the income-based provisions. 
The commenters' belief that the borrower's current loan balance would 
be used as the first part of this comparison is not accurate. Rather, 
the first part of the comparison uses the annual amount determined as 
of the date the borrower entered

[[Page 63237]]

repayment, without regard to the borrower's current payments.
    Changes: None.
    Comment: A group of commenters noted that because the HEOA amended 
the HEA with respect to the eligibility of defaulted borrowers for the 
IBR plan, the Department should revise the regulations to reflect that 
change and clarify that borrowers who are in default are not eligible 
for the IBR plan for their defaulted loans.
    Discussion: The Department agrees that under the HEA, as amended by 
the HEOA, a defaulted borrower is not entitled to elect IBR as a 
repayment plan. Upon default, a loan is due and payable in full by the 
borrower and the borrower no longer has the option to choose among the 
pre-default repayment plans. Under section 422(j) of the HEA, as 
amended by the HEOA, the Secretary has discretion to require a borrower 
of a defaulted FFEL loan to repay the loan under the IBR plan after it 
is assigned to the Department by a guaranty agency, and to require 
borrowers of other defaulted FFEL and Direct Loans held by the 
Department to also pay under the IBR plan.
    Changes: Section 682.215(a)(2) has been amended to exclude 
defaulted loans from the category of eligible loans for IBR repayment. 
Proposed Sec. Sec.  682.215(g)(7) and 682.410(b)(5)(vi)(G) and 
(b)(9)(i)(D), which would have regulated a guaranty agency's 
consideration of a defaulted loan for IBR and reimbursement to a 
guaranty agency on a defaulted loan that was forgiven under IBR have 
been removed.

IBR Payment Amounts

    Comment: Many commenters argued that the proposed regulations for 
the IBR plan would disadvantage married borrowers in cases where the 
borrower and his or her spouse both have outstanding loans, file a 
joint Federal tax return, and both qualify for IBR. In these cases, 
married borrowers could pay up to double the monthly loan payment of 
two unmarried borrowers in a similar financial situation. Each of the 
two married borrowers could be required to make payments representing 
up to 30 percent of discretionary income (the amount of a borrower's 
income that exceeds 150 percent of the poverty guideline applicable to 
the borrower's family size) whereas the HEA limits payments under the 
IBR plan to 15 percent of discretionary income. The commenters 
contended that this approach amounts to a ``double-counting penalty'' 
because the proposed regulations assumed that each spouse has access to 
the couple's total discretionary income, without considering that the 
other spouse is also making loan payments from the same discretionary 
income. To avoid this penalty for married borrowers, the commenters 
suggested that we consider both spouses' loan debt (instead of just the 
borrower's loan debt) in determining eligibility for the IBR plan.
    Discussion: This issue was raised during the negotiated rulemaking 
sessions to develop the proposed regulations and was discussed in the 
preamble to the NPRM (73 FR 37698-37699). As the Department noted in 
that discussion, section 493C(a) of the HEA provides that only the 
borrower's loan debt is considered when determining whether the 
borrower has a partial financial hardship. Moreover, section 493C(d) of 
the HEA specifically provides for considering the individual AGI of a 
married borrower only when the borrower and his or her spouse file 
separate Federal tax returns. Thus, the policy advocated by these 
commenters would not be consistent with the HEA.
    Changes: None.
    Comment: A group of commenters asked the Department to confirm in 
the preamble to the final regulations that lenders may use the 
Department's National Student Loan Data System (NSLDS) to determine the 
number and amount of loans a borrower has that are eligible to be 
included in the IBR plan. The commenters said that a lender would need 
access to NSLDS because a borrower may choose which eligible loans he 
or she wants to include under the IBR plan, and a lender needs to know 
how much the borrower owes to other lenders to calculate the payment 
amount under the IBR plan.
    Discussion: The Department agrees that lenders may use NSLDS for 
this purpose.
    Changes: None.
    Comment: Several commenters indicated that the IBR regulations for 
monthly payments of $0.00 and $10.00 were clear in the proposed 
regulations except when the borrower's eligible loans are held by 
multiple lenders. The commenters recommended that when there are 
multiple lenders, the application of the IBR regulations for monthly 
payments of $0.00 and $10.00 should apply at the lender level rather 
than at the borrower level.
    Discussion: We agree.
    Changes: Sections 682.215(b)(1)(ii) and (iii) and 685.221(b)(2)(ii) 
and (iii) have been revised to provide that the $0.00 and $10.00 
monthly payment regulations also apply when the borrower has multiple 
loan holders.
    Comment: Several commenters asserted that the NPRM did not clearly 
state when the three-year period during which the Secretary pays a 
borrower's unpaid accrued interest under the IBR plan would begin. The 
proposed regulations stated that this period would begin on ``the date 
the borrower initially began repayment on each loan under the income-
based repayment plan''. The commenters recommended that the regulations 
specify that this period begins with the established payment period 
start date on the loan. The commenters also stated that it was unclear 
under the proposed regulations whether the amount of the subsidy 
payment on behalf of the borrower was based on the borrower's monthly 
scheduled payment amount or the borrower's actual payment amount, and 
recommended that the subsidy payment be based on the borrower's actual 
payment. In addition, several commenters recommended that the 
regulations clarify that the 3-year interest subsidy period excludes 
any period during which the borrower receives an economic hardship 
deferment.
    Discussion: The Department agrees that the ``established payment 
period start date'' is the appropriate date for beginning the three-
year period during which the Secretary pays interest on the borrower's 
behalf. The Department also agrees that the regulations should reflect 
the provision in section 493C(b)(3) of the HEA that excludes periods of 
economic hardship deferment from the 3-year subsidy period. The 
Secretary disagrees, however, that the subsidy payment amount should be 
based on the actual payment of the borrower rather than the borrower's 
monthly scheduled payment amount. A borrower's scheduled monthly 
payment amount, regardless of whether it covers accrued interest, is 
the borrower's payment obligation. During the 3-year period, the 
Department's obligation under the law is to pay only the amount of 
unpaid accrued interest that is not the borrower's obligation to pay 
during this period.
    Changes: Sections 682.215(b)(4) and 682.300(b)(1)(iv) have been 
amended to clarify that the 3-year period during which the Secretary 
will pay interest for a borrower under the IBR plan begins on the 
borrower's established repayment period start date and excludes any 
period during which the borrower receives an economic hardship 
deferment. Similar changes have also been made to Sec.  685.221(b)(2) 
for the Direct Loan Program.
    Comment: Several commenters noted that there are three types of 
repayment amounts calculated under the IBR plan. The first repayment 
amount is calculated to determine whether a

[[Page 63238]]

borrower has a partial financial hardship and is the annual payment 
amount calculated for a 10-year repayment period under Sec.  
682.209(a)(6)(vi) of the FFEL Program regulations and is based on the 
loan balance outstanding when the borrower initially entered repayment 
on the loan. The second calculated payment amount is the maximum 
monthly payment amount calculated when a borrower no longer has a 
partial financial hardship or no longer wishes to make IBR based 
payment amounts but stays within the IBR plan, and is based on a 10-
year repayment period using the loan balance outstanding when the 
borrower began repayment on the loan under the IBR plan. The third 
payment amount is calculated when the borrower elects to leave the IBR 
plan entirely and is calculated, for a Stafford Loan, on the time 
remaining on a 10-year repayment period using the borrower's 
outstanding balance on the loan when the borrower discontinued paying 
under the IBR plan, and for a Consolidation Loan, on the remaining 
repayment period using the borrower's outstanding balance on the loan 
and on other student loans that were outstanding when the borrower 
discontinued paying under the IBR plan. During the negotiated 
rulemaking process, the non-Federal negotiators from the FFEL industry 
used the terms standard-standard, standard-permanent, and standard-
expedited to designate these three calculated amounts and the 
commenters recommended that the Department incorporate these terms into 
the regulations for ease of understanding.
    Discussion: The Department thanks the commenters for suggesting 
these terms. However, these terms are not used in the HEA and the 
Department does not believe that they should be used in the program 
regulations. These terms may be used for illustrative and training 
purposes in nonregulatory guidance.
    Changes: None.
    Comment: Several commenters recommended that we include preamble 
language to clarify that the $50 minimum payment rule that generally 
applies in the FFEL Program would apply to the monthly payment 
calculated when a borrower no longer has a partial financial hardship. 
These commenters also believed that the proposed regulations regarding 
the maximum monthly payment amount could be interpreted to give the 
borrower the discretion to make a lower payment. They recommended that 
we clarify the regulations to specify that the loan holder, not the 
borrower, determines this payment amount.
    Discussion: We agree that the minimum monthly payment of $50 
applies when the borrower no longer has a partial financial hardship. 
We also agree that the maximum monthly repayment amount is an amount 
determined by the loan holder, not by the borrower, based on a FFEL 
standard repayment plan with a 10-year repayment period.
    Changes: Section 682.215(d)(1)(i) has been revised to clarify that 
the loan holder determines the monthly payment amount.
    Comment: Several commenters recommended that the regulations in 
proposed Sec.  682.215(c)(3) that require a loan holder to apply any 
prepayment amount or any amount that exceeds the monthly payment amount 
consistent with the requirements of Sec.  682.209(b)(2)(ii) and which 
would advance the borrower's payment due date under certain 
circumstances, should not apply when a borrower's monthly payment 
amount is $0.00.
    Discussion: We agree that there is no need to advance the next 
monthly due date under 34 CFR Sec.  682.215(c)(3) when a borrower sends 
in a prepayment at a time when the borrower's monthly payment amount is 
$0.00. The prepayment amount should be applied in the order specified 
in Sec.  682.215(c)(1): interest, collection costs, late charges, and 
loan principal.
    Changes: Section 682.215(c)(3) has been revised to clarify that the 
requirement to advance a payment due date applies only when the 
prepayment amount equals or exceeds the monthly payment amount of 
$10.00 or more. We also have added a new Sec.  682.215(c)(4) to clarify 
that when the prepayment amount exceeds the monthly payment amount of 
$0.00, the prepayment amount is applied consistent with Sec.  
682.215(c)(1).

Documentation and Verification Requirements

    Comment: Under the proposed regulations, if a borrower selects the 
IBR plan, but does not provide or renew the required written consent 
for income verification, or withdraws consent and does not select 
another repayment plan, the lender places the borrower in the IBR plan, 
and the borrower is required to make payments based on a 10-year FFEL 
standard repayment plan. Several commenters recommended that the 
Department revise the regulations to clarify that if a borrower 
requests IBR, but does not provide documentation to prove partial 
financial hardship, then the request must be denied and the borrower 
must remain in his current repayment plan or choose another plan for 
which he is eligible.
    Discussion: The regulations address the impact of a borrower's 
failure to submit required documentation for the IBR plan in two 
places. Under Sec.  682.209(a)(6)(v)(C), a lender must deny a 
borrower's request for an IBR repayment schedule if the borrower does 
not submit the required documentation within the time specified by the 
lender. The provisions in Sec. Sec.  682.215(e)(2)(i) and 
685.221(e)(2)(i) that are discussed by the commenters apply only to 
borrowers who are already in the IBR plan, but in a subsequent year 
fail to renew their written consent for income verification. We agree 
to revise the regulations to clarify this distinction.
    Changes: Sections 682.215(e)(2)(i) and 685.221(e)(2)(i) have been 
revised to clarify that if a borrower who is already in the IBR plan 
fails to renew his or her consent for income verification, the loan 
holder treats the borrower in the same way as a borrower who no longer 
has a partial financial hardship.
    Comment: The proposed regulations require a loan holder to 
determine whether a borrower has a partial financial hardship each year 
the borrower is in the IBR plan. Several commenters argued that a 
borrower who no longer has a partial financial hardship but remains in 
the IBR plan should not be required to provide partial financial 
hardship eligibility documentation for subsequent years.
    Discussion: Section 493C(c) of the HEA requires a loan holder to 
verify each year that a borrower has a partial financial hardship and 
is eligible for IBR. The regulations must reflect this requirement.
    Changes: None.
    Comment: Under the proposed regulations, in determining whether a 
borrower has a partial financial hardship, the family size 
determination defaults to one for any year for which a borrower does 
not certify family size. Some commenters suggested that family size 
default instead to the family size previously certified by the 
borrower.
    Discussion: The Department believes that defaulting to the prior 
year's family size would be a disincentive for borrowers in the IBR 
plan to provide to loan holders timely, updated information on their 
family size. Moreover, allowing family size to default to the 
borrower's family size for the prior year would increase Federal costs 
and would require a budgetary offset.
    Changes: None.

[[Page 63239]]

Processing Loan Forgiveness in the IBR Plan

    Comment: Under the proposed regulations, if a borrower leaves the 
IBR plan, the borrower must pay under the FFEL standard repayment plan, 
and the lender recalculates the borrower's monthly payments based on 
the time remaining in the standard 10-year repayment period. Several 
commenters believed the time that the borrower is in the IBR plan 
should be treated like a deferment or forbearance and should not be 
counted towards the 10-year repayment period. These commenters argued 
that borrowers should have the option to switch out of the IBR plan to 
any repayment plan for which they are eligible--not just the FFEL 
standard repayment plan--and effectively have a full repayment period 
available to them after leaving the IBR plan.
    Discussion: Section 493C(b)(8) of the HEA specifies that a borrower 
who is repaying a loan under the IBR plan may, at any time, terminate 
repayment under the IBR plan and ``repay such loan under the standard 
repayment plan.'' The law does not give the borrower the option to 
choose a different repayment plan when terminating repayment under the 
IBR plan. Nor is there authority in the HEA to treat the borrower's 
time in the IBR plan as a deferment or forbearance that is excluded 
from the repayment period. However, the HEA does not require that 
borrowers stay in the standard 10-year repayment plan for the remaining 
life of the loan. As with any other borrower in the FFEL and Direct 
Loan programs, these borrowers may request a change in repayment plan 
no more frequently than annually as provided in the HEA. However, since 
the maximum repayment periods under other FFEL and Direct Loans 
repayment plans, except extended repayment and Consolidation, are 10 
years, in most circumstances the repayment options for the borrower 
will be severely limited depending on the period of time the borrower 
remained in the IBR plan.
    Changes: None.
    Comment: Several commenters stated that they believe that under the 
HEA any borrower payment that is not less than either the payment 
calculated based on a 10-year repayment plan using the outstanding 
balance when the borrower began repayment, or the payment based on a 
10-year repayment plan using the outstanding balance when the borrower 
first began IBR, should count toward the 25-year forgiveness period. 
The commenters asked that this reading of the HEA be reflected in the 
regulations.
    Discussion: Section 493C(b)(7) of the HEA specifically lists the 
types of payments and payment plans that qualify the borrower for IBR 
loan forgiveness. Only payments made under the specified repayment 
plans and for the stipulated amounts count toward the 25 year period 
for forgiveness.
    Changes: None.
    Comment: The loan holder must request payment from the guaranty 
agency no later than 60 days after the loan holder determines that the 
borrower qualifies for loan forgiveness. Several commenters noted that 
the actual date a borrower qualifies for loan forgiveness under the IBR 
plan is a date the lender tracks, and recommended that that date be the 
start date for the 60-day filing period, rather than the date the 
lender makes the determination that the borrower qualifies, as provided 
for in the proposed regulations.
    Discussion: We disagree with the commenters' recommendation. In the 
case of other loan discharges under the HEA, the trigger date for 
lender filing deadlines is the date the lender makes a determination of 
the borrower's eligibility, or the date the borrower submits a written 
request for discharge. The trigger date is not the actual date that the 
borrower became eligible for the discharge. We believe that IBR loan 
forgiveness should be treated similarly to loan discharges in this 
regard, with the 60-day filing period beginning on the date the lender 
determines that the borrower qualifies for loan forgiveness.
    Changes: None.
    Comment: Several commenters urged the Department to provide 
specific guidance regarding qualifying loan payments for the 25-year 
IBR loan forgiveness in light of the HEOA change to the HEA that 
excludes defaulted borrowers from IBR. The commenters asked whether all 
pre-default, post-default, and loan rehabilitation payments would count 
towards satisfying the 25-year payment requirement.
    Discussion: When a borrower defaults on a loan, the loan is 
immediately due and payable in full. Any payments made by a borrower to 
the holder of the defaulted loan are not made under an authorized 
repayment plan. Payments made under a rehabilitation agreement with the 
holder are payments made on a defaulted loan. The Department believes 
that the result of the change made by the HEOA is that only pre-default 
payments will be considered qualifying payments for the purpose of the 
25-year IBR forgiveness, unless the borrower is in an authorized post-
default IBR plan on a defaulted loan held by the Department. However, a 
borrower repaying under the IBR plan who defaults, then successfully 
rehabilitates the defaulted loan, and then returns to IBR on the 
rehabilitated loan would simply resume the 25-year repayment period for 
forgiveness.
    Changes: Section 682.215(f) has been revised to specify that 
payments made on a defaulted loan are not made under a qualifying 
repayment plan and therefore, do not count toward the 25-year 
forgiveness period. A conforming change has been made to Sec.  
685.221(f).
    Comment: Several commenters recommended that the regulations 
specify that a holder must promptly return any payment received on a 
loan after the guaranty agency pays the holder the forgiveness amount.
    Discussion: We agree.
    Changes: We have added a new Sec.  682.215(g)(8) to the 
regulations, to read: ``The loan holder must promptly return to the 
sender any payment received on a loan after the guaranty agency pays 
the loan holder the amount of loan forgiveness.''
    Comment: Under the proposed regulations, a loan holder must provide 
the borrower with information on the required handling of the 
forgiveness amount. Some commenters requested that the Department 
clarify in the preamble that it is inappropriate for a holder to 
provide tax advice and that holders could comply with the regulatory 
requirement by directing the borrower to the IRS Web site or to IRS 
Publication 970 for more information. The commenters also pointed out 
that this provision is not in the corresponding section in the Direct 
Loan program regulations.
    Discussion: A loan holder is expected to make a general disclosure 
to the borrower on what it believes to be the current tax treatment of 
such amounts and is encouraged to refer borrowers to the IRS for 
further information. The Department will provide similar information to 
Direct Loan borrowers but the Direct Loan program regulations do not 
need to be amended since the Secretary does not issue regulations to 
govern the Department.
    Changes: None.
    Comment: The proposed regulations provide that if a guarantor does 
not pay an IBR loan forgiveness claim, the lender resumes collection 
activity on the loan. Several commenters requested that we specify that 
the lender may capitalize the interest that accrued but was not paid on 
the loan for the period during which the borrower's obligation to repay 
the loan was suspended.
    Discussion: In general, we agree that interest that accrued during 
the period when collection on the loan is

[[Page 63240]]

suspended while the loan forgiveness claim is being processed should be 
capitalized. However, the loan holder should not benefit if the loan 
holder submits the claim for forgiveness in error. Therefore, we have 
modified the regulations to provide for capitalization only if the 
forgiveness claim is not submitted by the lender in error.
    Changes: Section 682.215(g) has been revised by adding the 
following sentence: ``Unless the denial of the forgiveness claim was 
due to an error by the lender, the lender may capitalize, in accordance 
with Sec.  682.202(b), any interest accrued and not paid during this 
period.''

Eligible Not-for-Profit Holder Definition (Sec.  682.302(f)(3))

    Comment: On the issue of determining when a for-profit controls a 
not-for-profit holder, several commenters representing FFEL industry 
members stated that a distinction made in the preamble to the NPRM 
between family members employed as lower level employees at a not-for-
profit loan holder and those employed in more responsible positions is 
not reflected in the regulations. The commenters believed that the 
proposed regulations relating to a for-profit entity exercising control 
over a State or non-profit entity leave to the discretion of the 
Secretary the determination of whether the nature of a family member's 
employment is likely to affect the integrity of decisions made by a 
non-profit entity's boards or committee. The commenters pointed out 
that in very large organizations someone could be in a ``responsible 
position'' but have no influence or control over student loans. The 
commenters asked the Department to clarify that the Secretary has the 
discretion to determine whether a family member could be employed at a 
non-profit organization in a responsible position unrelated to student 
loans.
    Discussion: The Department agrees that the proposed regulations do 
not draw any distinction based on the level of a family member's 
employment in determining whether that employment or appointment by a 
for-profit entity constitutes control of the non-profit entity. We 
note, however, that Sec.  682.302(f)(3)(vi)(B) assumes that the 
employment or appointment of a family member at any level of employment 
constitutes controlling influence of the non-profit entity unless the 
Secretary specifically determines otherwise. The Secretary will 
examine, among other factors, the family member's level of employment 
or appointment in determining whether that employment affects the 
integrity of the non-profit entity's decisions.
    Changes: None.
    Comment: Several commenters representing FFEL industry participants 
noted that State and non-profit entities are often required to create 
and use special purpose entities in connection with financing the 
origination or purchase of FFEL Program loans. This kind of special 
purpose entity is often called a ``bankruptcy remote vehicle'' because, 
although it was created by, and may appear to be a subsidiary or 
affiliate of, the State or non-profit entity, its asset and liability 
structure and its legal structure and status make its obligations 
secure in the event of the bankruptcy of the non-profit entity parent 
or guarantor. Such a special purpose entity is separate from the State 
or non-profit entity. By complying with various criteria established by 
bond rating agencies or lenders that support its bankruptcy remote 
status, its loans and other assets are viewed as sufficiently protected 
from claims by creditors of the State or non-profit entity in the event 
of such a bankruptcy. The commenters noted that the Department has 
previously taken the position that an eligible lender trustee may 
qualify as an eligible not-for-profit holder when it is acting on 
behalf of a special purpose entity related to a State or non-profit 
entity, even though the special purpose entity--and not the State or 
non-profit entity--held beneficial or legal ownership, or both, of the 
loans. The proposed regulations as drafted would have disqualified 
loans for which a State or non-profit entity was not the sole 
beneficial owner. Commenters asked that the Department specify in the 
final regulations that the Department considers loans that would 
qualify for the higher special allowance payment (SAP) rate if owned 
directly by an eligible not-for-profit holder that is a State or non-
profit entity will qualify for that rate if now owned solely by its 
related special purpose entity.
    Discussion: The Department acknowledges that the use of a special 
purpose entity, sometimes called a ``bankruptcy remote vehicle,'' is 
often a required element of financing FFEL program loan originations 
and purchases by State and non-profit entities. Because the special 
purpose entity holds beneficial or legal ownership, or both, of the 
loans originally acquired by the not-for-profit holder, the Department 
believes the regulations, as proposed, should be revised for two 
reasons. First, the proposed regulations have been revised to ensure 
that loans acquired by a State or non-profit entity that is an eligible 
not-for-profit holder but which are now held by a special purpose 
entity qualify for the higher SAP rate. Second, changes have been made 
to apply to the special purpose entity used by a not-for-profit holder 
the same tests that apply directly to the State or non-profit entity.
    The final regulations apply without regard to whether a particular 
special purpose entity is sufficiently remote from the State or non-
profit entity to insulate the former from the claims that might be 
asserted in the bankruptcy of the latter. Similarly, the regulations 
apply without regard to whether a particular special purpose entity is 
a ``qualifying SPE'' under Financial Accounting Standards Board 
Statement No. 140.
    Changes: We have amended the regulations to address a not-for-
profit holder's use of a special purpose entity.

Public Service Loan Forgiveness

    Most of the comments received by the Department in response to the 
NPRM pertained to the public service loan forgiveness program. A 
majority of those comments were from law schools, law students, legal 
aid centers, clinics, and associations, public interest attorneys and 
public defenders. The commenters overwhelmingly supported the program 
because it would provide relief to borrowers who choose charity and 
other public service and nonprofit employment, and because they believe 
it will prove to be an important tool for attracting graduates and 
retaining talented employees in critical jobs that support our 
society's well-being. The specific comments are discussed below.

Borrower Eligibility

    Comment: Some commenters working at nonprofit or governmental 
organizations noted that the loan forgiveness program became effective 
on October 1, 2007, and asked that payments made on their loans and 
service performed before that date be counted toward satisfying the 
loan forgiveness requirements.
    A few commenters who are borrowers of joint FFEL Program 
consolidation loans asked whether they could reconsolidate that loan 
either jointly or separately into the Direct Loan program to qualify 
for the public service loan forgiveness benefit.
    A Peace Corps official asked that Peace Corps service be considered 
qualifying service for public service loan forgiveness and be treated 
in the same manner as service in full-time AmeriCorps positions, 
including counting payments made during Peace Corps service as 
qualifying payments for loan forgiveness. The commenter stated

[[Page 63241]]

that even though individuals serving in the Peace Corps are not 
considered Federal government employees, they are treated as such for 
certain purposes, such as retirement and under the Federal Employees 
Compensation Act.
    Discussion: The CCRAA establishes October 1, 2007, as the effective 
date for the beginning of the public service loan forgiveness program 
and requires that a borrower's qualifying payments be made while the 
borrower is providing the qualifying full-time service. Consequently, 
periods of service or payments made on an eligible loan prior to the 
October 1, 2007, effective date do not count towards the requirements 
for loan forgiveness.
    The HEA authorizes borrowers to consolidate their FFEL Program 
loans into the Direct Loan program for the purpose of public service 
loan forgiveness. However, there is no authority to make new joint 
consolidation loans in either the FFEL or Direct Loan programs. In 
taking out a joint consolidation loan, both borrowers become jointly 
and severally liable for the repayment of the full amount of the loan. 
There is no statutory authority to allow one of the borrowers to assume 
the entire joint consolidation debt or for the borrowers to somehow 
separate the joint consolidation loan into separate individual loans. 
Therefore, borrowers with joint FFEL consolidation loans cannot become 
eligible for the public service loan forgiveness program.
    The Department agrees with the commenter that individuals serving 
in the Peace Corps perform valuable public service on behalf of their 
fellow citizens and that they should be treated like borrowers serving 
in AmeriCorps positions. However, under the HEA, to qualify for 
forgiveness, the borrower must be making payments while performing 
public service. Unlike a borrower serving in a full-time AmeriCorps 
position, a borrower serving full-time in the Peace Corps is eligible 
for an economic hardship deferment for the entire period of the 
borrower's Peace Corps service and has no obligation to make payments. 
Additionally, the Peace Corps does not provide an educational benefit 
that the borrower can choose to use to repay title IV student loans, 
but instead provides an individual leaving Peace Corps service with a 
lump sum transition allowance. Given these circumstances, the 
Department has determined that an individual serving in the Peace Corps 
may meet the loan forgiveness payment requirement in one of two ways: 
(1) By declining the economic hardship deferment and making scheduled 
payments on the loan during the service period; or (2) by making a lump 
sum payment on the loan from the Peace Corps transition allowance no 
later than six months after the borrower's receipt of those funds. A 
lump sum payment on a title IV loan from Peace Corps transition funds 
will be treated like a payment made from an AmeriCorps borrower's Segal 
Education Award in determining the number of the borrower's qualifying 
payments.
    Changes: Section 685.219(b) has been amended to include a 
definition of a Peace Corps position, Sec.  685.219(c)(1)(ii) has been 
amended to include a reference to a Peace Corps position, and Sec.  
685.219(c)(2) has been amended to apply the treatment of lump sum 
payments to a payment made from Peace Corps transition funds.

Documenting and Maintaining Eligibility

    Comment: Many commenters asked the Department to develop a clear 
and simple method for the borrower, the employer, or both, to determine 
annually the borrower's eligibility for public service loan forgiveness 
(i.e., that the borrower's employment was with an eligible employer and 
that the borrower was paying under an acceptable repayment plan). The 
commenters stated that they believed strongly that borrowers should not 
be left in the dark regarding whether they would qualify for loan 
forgiveness by applying and documenting their eligibility after 10 
years of service and repayment. The commenters noted that this approach 
would require the borrower to retain pay stubs or other supporting 
documentation of their employment for the entire 10-year period. The 
commenters believed that this recordkeeping obligation would be too 
great of a burden to impose on recent graduates. The commenters also 
believed that ongoing information on the borrower's eligibility is 
important for the borrower's career and financial decisions. The 
commenters recommended that the Department create an on-line, password-
protected system through which qualifying employers could annually 
certify the employment of borrower-employees, or otherwise provide a 
reliable system for borrowers to document, confirm, and track job 
eligibility. Some of these commenters also asked that we establish a 
program of employer pre-certification under which the Department would 
maintain an ongoing list of certified eligible employers for borrower 
reference. One commenter disagreed with the Department's position in 
the NPRM that implementing such a system was an operational rather than 
a regulatory issue, and asked that a system for annual eligibility 
verification be reflected in the regulations. Another commenter stated 
that it was preferable to require a borrower to submit past pay stubs, 
direct deposit salary documents, or wage and salary statements (W-2s) 
rather than require the employer to provide some certifying document of 
the borrower's dates of employment.
    Many commenters urged the Department to incorporate the public 
service loan forgiveness program as a term and condition in the 
Department's Direct Loan master promissory note (MPN). The commenters 
believed that making this change to the MPN would prevent Congress from 
repealing the forgiveness benefit after borrowers have spent years 
working to meet the eligibility requirements.
    Another commenter recommended that the Direct Consolidation Loan 
application and the public service loan forgiveness application be 
combined so that no gap exists in the student's ability to consolidate 
and then pursue public service loan forgiveness.
    Other commenters representing participants in the FFEL industry 
requested that the Department's procedures for eligibility 
determinations and notification to borrowers who are not eligible for 
loan forgiveness under this program be spelled out in greater detail 
consistent with the approach in Sec.  685.216(e)(4).
    Discussion: The Department believes that the way in which borrowers 
apply for and document their eligibility for the public service loan 
forgiveness benefit is best handled administratively. We assure the 
commenters that we will continue to examine ways to assist borrowers 
who are interested in, or already employed in public service, to 
determine and document their eligibility for the loan forgiveness 
program.
    The Department will develop a form for borrowers to use to apply 
for the public service loan forgiveness when the borrower believes he 
or she qualifies. The proposed form will be subject to public comment 
under the Paperwork Reduction Act of 1995. As with other discharge 
applications the Department has developed, the form will include all 
the information the borrower and the borrower's employer need regarding 
the eligibility criteria, applicable definitions, and procedures for 
applying for the loan forgiveness benefit. The form will include an 
employer certification section and instructions regarding supporting 
documentation that the Department will need to determine the borrower's

[[Page 63242]]

eligibility for the forgiveness benefit. The borrower will be able to 
use this form to collect a certification from his or her employer 
either annually or at the close of the 120-payment qualifying period. 
The form will also be used for certification for borrowers who have 
more than one employer. The Department expects the borrower to collect 
and retain the necessary records that support the borrower's 
eligibility for this benefit. This policy is consistent with the 
general practice in the student loan programs--borrowers are always 
responsible for collecting and maintaining records to support their 
receipt of benefits under the programs.
    With regard to incorporating a description of the public service 
loan forgiveness benefit in the MPN, the Department is already taking 
steps to refer to the program in the MPN and other program documents. 
However, the MPN will continue to state, as it currently does, that the 
terms and conditions of the loans are subject to the HEA as it is 
amended in accordance with the effective date of those amendments. 
Although there is no history in the program of Congress eliminating or 
reducing a borrower benefit, the Department does not believe that a 
reference to the public service loan forgiveness program in the MPN 
would provide the borrower with a contractual right to the benefit 
should Congress take action to eliminate that benefit from the HEA as 
of a particular effective date.
    The Department declines to modify the Direct Loan Consolidation 
Application to include the application for public service loan 
forgiveness. Unless the borrower is a FFEL borrower, he or she is not 
required to consolidate to receive the public service loan forgiveness 
benefit. Additionally, even if a borrower consolidates, the borrower 
may not be eligible to apply for the loan forgiveness benefit until 
many years after the consolidation, if at all. The Department agrees 
that it is appropriate to provide more detail in the regulations, 
consistent with what is provided for other loan discharges, on the 
procedures it will follow after determining a borrower's eligibility 
and when notifying the borrower of his or her ineligibility.
    Changes: We have revised Sec.  685.219(e)(3) to specify that if the 
Secretary determines that the borrower is not eligible for the public 
service loan forgiveness, the Secretary will notify the borrower of 
that decision, provide the basis for the denial, and inform the 
borrower that the Department will resume collection of the loan. The 
Secretary will grant forbearance on the loan for any period during 
which collection activity was suspended while the Secretary was 
considering the borrower's application and may capitalize any interest 
that accrued and was not paid during that period.

Definitions

Full-Time

    Comment: Some commenters requested that reference to an employer's 
full-time employment standard in the definition of ``full-time'' for 
public service employment be eliminated because it penalizes borrowers 
whose employers require more than 30 hours per week. Some commenters 
also requested that we define full-time employment so that individuals 
are able to count multiple eligible part-time public service jobs 
toward the full-time requirement and eliminate any conflict that may 
arise if any of the part-time employers use a different full-time 
standard.
    One commenter asked that the definition be amended to specify that 
leave taken under a condition covered by the Family and Medical Leave 
Act of 1993 (FMLA) does not constitute a break or have the effect of 
reducing the borrower's annual average to below 30 hours per week, or 
below the employer's full-time standard.
     Discussion: The Department understands that some borrowers whose 
employers have a standard for full-time employment greater than 30 
hours per week may believe that they are being unfairly penalized. The 
Department believes, however, that the forgiveness benefit is intended 
to acknowledge full-time employment and that it is appropriate to use 
an employer's standard when an employer has a full-time employment 
standard.
    We agree that a borrower who is working part-time in more than one 
public service job cannot be held to more than one full-time standard 
in fulfilling the full-time requirement. We also agree that leave taken 
under conditions covered by the FMLA should not result in the borrower 
failing to meet the 30 hours per week annual average or the employer's 
full-time standard.
     Changes: We have revised the definition of full-time in Sec.  
685.219(b) to apply the 30 hours per week annual average as the 
governing full-time standard when a borrower is working in more than 
one qualifying job and to specify that leave taken for a condition that 
is a qualifying reason for leave under the FMLA does not count in 
determining whether a borrower meets the full-time definition.

Public Service Organization

    Comment: Some commenters asked that the definition of government 
employee be clarified to specifically include employees of 
intergovernmental or public regional agencies, and to include a public 
primary, secondary, or higher education institution, district, or 
system.
    A few commenters recommended that ``public health'' be defined in 
the manner provided in the U.S. Health Code, title 42, chapter 6A, 
Public Health Service, subchapter XVIII, part E, subsection 1395X to 
include: Doctors of Medicine and Osteopathy, Doctors of Chiropractic, 
Doctors of Dental Surgery and Dental Medicine, Doctors of Optometry and 
Doctors of Podiatric Medicine. The commenters believed that this level 
of specificity was necessary because the public health sector includes 
both non-profit entities that have doctors on their staff and for-
profit providers such as doctors in private practice.
    Several commenters recommended that contract employees who serve 
organizations that are tax exempt under section 501(c)(3) of the 
Internal Revenue Code should be considered as employees of a public 
service organization. Another commenter claimed that the proposed 
regulations improperly excluded employment that is within the statutory 
definition such as for-profit businesses, private law firms that 
provide defense for indigents through state funding, and non-profit 
non-governmental organizations that do not qualify under section 
501(c)(3) of the Internal Revenue Code. The commenter stated that the 
regulations should specify that Interest on Lawyers' Trust Accounts 
(IOLTA) funding would be considered public funding for purposes of 
meeting the requirement of being ``funded in whole or in part by a 
local, State, Federal, or Tribal government'', and took exception to 
the exclusion of labor unions from eligibility as without justification 
if the labor union otherwise meets appropriate standards for a public 
service organization.
    Discussion: As the Department indicated in the preamble to the NPRM 
(72 FR 37705), the definition of ``public service organization'' is 
derived from the statutory definition of ``public service job'' in 
section 455(m)(3)(B) of the HEA, and is intended to identify broad 
categories of eligible jobs rather than define specific jobs under 
those categories. An intergovernmental or public regional agency would 
appear to be encompassed under ``Federal, State, local, or Tribal 
government

[[Page 63243]]

organization, agency, or entity'' depending on its governance and the 
funding source for salaries. Employees of public and private, non-
profit elementary, secondary, and postsecondary schools would be 
covered either as employees of a government organization, agency, or 
entity or of a private organization that provides public education. 
Employees of tribal colleges and universities are specifically listed 
as eligible in the HEA. Contract workers at these institutions who are 
not paid by the institution, but are paid by a for-profit company 
contracted to provide certain services to the institution would not be 
covered.
    As part of the HEOA, Congress recently added a clarifying non-
exhaustive list of examples of qualified ``public health'' jobs to 
section 455(m)(3)(B) of the HEA. We have incorporated those examples 
into these final regulations.
    Non-profit organizations that do not qualify under section 
501(c)(3) of the Internal Revenue Code may nonetheless qualify as a 
private organization that provides qualifying public services.
    We do not believe it is appropriate to make employees of for-profit 
firms receiving IOLTA funding specifically eligible for the public 
service loan forgiveness program. These employees are not employees of 
a government agency and are not likely to work full-time at a public 
service job.
    The Department continues to believe that the term ``public sector 
jobs'' does not encompass every job. The nature of the employer and the 
funding source of salaries are appropriate considerations.
    Changes: None.

Tax Status of Forgiven Amounts

     Comment: One commenter asked the Department to clarify ambiguities 
related to the tax status of the amount of loans forgiven under the 
public service loan forgiveness program.
     Discussion: Section 108(f) of the Internal Revenue Code provides 
that amounts discharged on loans made by a governmental entity can be 
excluded from the borrower's income if the discharge was for work ``in 
certain professions for any broad range of employers.'' 26 U.S.C. 
108(f). The Internal Revenue Service has not issued any determination 
of whether work that qualifies an individual for public service loan 
forgiveness under section 455(m) of the HEA would qualify under 26 
U.S.C. 108(f), and the Department does not have the legal authority to 
make such a determination here.
    Changes: None.

Executive Order 12866

Regulatory Impact Analysis

    Under Executive Order 12866, the Secretary must determine whether 
the regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the 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 set forth in the Executive order.
    Pursuant to the terms of the Executive order, it has been 
determined that this regulatory action will have an annual effect on 
the economy of more than $100 million. Therefore, this action is 
``economically significant'' and subject to OMB review under section 
3(f)(1) of Executive Order 12866. In accordance with the Executive 
order, 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 final regulations are needed to 
implement provisions of the HEA, as amended by the CCRAA, that 
established a new IBR plan for FFEL and Direct Loan borrowers, revised 
the conditions under which a FFEL or Direct Loan borrower could qualify 
for a loan deferment due to economic hardship, changed the terms of a 
number of military service deferments, created a loan forgiveness 
program in the Direct Loan Program for borrowers who perform public 
service, and established a separate special allowance rate formula for 
not-for-profit loan holders in the FFEL Program. The Regulatory Impact 
Analysis portion of the NPRM discussed areas where the Secretary has 
exercised limited discretion in implementing the CCRAA provisions.
    These final regulations also implement changes made to two of the 
regulations to reflect changes made by the HEOA. However, the changes 
only incorporate statutory changes and do not involve any exercise of 
discretion by the Secretary.

Regulatory Alternatives Considered

    A broad range of alternatives to the regulations was considered as 
part of the negotiated 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 of 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 the preamble to these 
final regulations under the Discussion sections related to each 
provision. No comments were received related to the Regulatory Impact 
Analysis discussion of these alternatives.
    As discussed above in the Analysis of Comments and Changes section, 
the final regulations reflect statutory amendments included in the HEOA 
and minor revisions in response to public comments. None of these 
changes result in revisions to cost estimates prepared for and 
discussed in the Regulatory Impact Analysis of the NPRM.

Net Budget Impacts

    As noted in the NPRM, the CCRAA provisions implemented by these 
regulations are estimated to have a net budget impact of $650 million 
in 2008 and $9.2 billion over FY 2008-2012. Consistent with the 
requirements of the Credit Reform Act of 1990, budget cost estimates 
for the student loan programs reflect the estimated net present value 
of all future non-administrative Federal costs associated with a cohort 
of loans. (A cohort reflects all loans originated in a given fiscal 
year.) Details on how these estimates were developed are provided in 
the Regulatory Impact Analysis portion of the NPRM.

Assumptions, Limitations, and Data Sources

    Because these regulations would largely restate statutory 
requirements that would be self-implementing in the absence of 
regulatory action, impact estimates provided in the preceding section 
reflect a pre-statutory baseline in which the CCRAA changes implemented 
in these regulations do not exist. Costs have been quantified for five 
years.
    In developing these estimates, a wide range of data sources were 
used,

[[Page 63244]]

including data from the National Student Loan Data System, operational 
and financial data from Department of Education systems, and data from 
a range of surveys conducted by the National Center for Education 
Statistics such as the 2004 National Postsecondary Student Aid Survey, 
the 1994 National Education Longitudinal Study, and the 1996 Beginning 
Postsecondary Student Survey. Data from other sources, such as the 
Census Bureau, were also used. No comments or additional data were 
received related to the estimates or discussions included in the NPRM.
    Elsewhere in this SUPPLEMENTARY INFORMATION section we identify and 
explain burdens specifically associated with information collection 
requirements. See the heading Paperwork Reduction Act of 1995.

Accounting Statement

    As required by OMB Circular A-4 (available at http://www.Whitehouse.gov/omb/Circulars/a004/a-4.pdf), in Table 2 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of these regulations. This 
table provides our best estimate of the changes in Federal student aid 
payments as a result of these regulations. Expenditures are classified 
as transfers from the Federal government to student loan borrowers (for 
the IBR, loan deferment, and loan forgiveness provisions) and from 
student loan holders to the Federal government (for the SAP 
provisions).

                     Table 2--Accounting Statement: Classification of Estimated Expenditures
----------------------------------------------------------------------------------------------------------------
               Category                              Transfers                            Transfers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized Transfers........  3%.................................  7%.
Federal Government to Student Loan      $1.292 billion.....................  $1.357 billion.
 Borrowers.
Federal Government to Student Loan      $580 million.......................  $568 million.
 Holders.
                                       -------------------------------------------------------------------------
    Total.............................  $1.872 billion.....................  $1.925 billion.
----------------------------------------------------------------------------------------------------------------

Regulatory Flexibility Act Certification

    The Secretary certifies that these final regulations would not have 
a significant economic impact on a substantial number of small 
entities. These final regulations would affect institutions of higher 
education, lenders, and guaranty agencies that participate in title IV, 
HEA programs and individual students and loan borrowers. The U.S. Small 
Business Administration Size Standards define these institutions as 
``small entities'' if they are for-profit or nonprofit institutions 
with total annual revenue below $5,000,000 or if they are institutions 
controlled by governmental entities with populations below 50,000. 
Guaranty agencies are State and private nonprofit entities that act as 
agents of the Federal government, and as such are not considered 
``small entities'' under the Regulatory Flexibility Act. Individuals 
are also not defined as ``small entities'' under the Regulatory 
Flexibility Act.
    As noted in the NPRM, a significant percentage of the lenders and 
schools participating in the Federal student loan programs meet the 
definition of ``small entities.'' While these lenders and schools fall 
within the SBA size guidelines, the final regulations do not impose 
significant new costs on these entities.
    In the NPRM the Secretary invited comments from small institutions 
as to whether they believe the proposed regulations would have a 
significant economic impact on them and, if so, requests evidence to 
support that belief. No comments or data were received.

Paperwork Reduction Act of 1995

    Sections 674.34, 682.205, 682.209, 682.210, 682.211, 682.215, 
682.302, 685.204, 685.205, 685.219, 685.220, and 685.221 contain 
information collection requirements. Under the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3507(d)), the Department has submitted a copy of 
these sections to OMB for its review.
    Sections 674.34(h)-(i), 682.210(t)-(u), and 685.204(e)-(f)--
Deferment of Repayment--Federal Perkins Loan, NDSLs, Defense Loans, 
FFEL, and Direct Loans.
    The final regulations amend the provisions related to the military 
service deferment and the post-active duty student deferment in the 
Federal Perkins, FFEL, and Direct Loan Programs.
    The final regulations regarding the post-active duty student 
deferment would result in an increase in the burden hours associated 
with the current Federal Perkins/FFEL/Direct Loan military deferment 
request form cleared under OMB Control Number 1845-0080. The current 
military deferment request form covers only the military service 
deferment. The form will be revised to cover both the military service 
deferment and the post-active duty student deferment. The Department 
expects to submit a revised deferment request form for clearance by 
November 2008.

Section 682.205(h)--Disclosure Requirements for Lenders

    These final regulations provide that, at the time of offering a 
borrower a loan and at the time of offering a borrower repayment 
options, the lender must provide the borrower with a notice that 
informs the borrower of the availability of the income-sensitive and 
the IBR repayment plans, except for parent PLUS borrowers and 
Consolidation Loan borrowers whose Consolidation Loan paid off one or 
more parent PLUS Loans. This information may be provided in a separate 
notice or as part of the other disclosures required by this section.
    The Department has determined that this modification to the current 
notification requirements would not increase the burden associated with 
Sec.  682.205 and the associated collection, OMB Control No. 1845-0020.

Section 682.209(a)--Repayment of a Loan

    The final regulations would add the IBR plan as a repayment option 
for FFEL borrowers and require lenders to take certain actions when a 
borrower fails to select a repayment plan within 45 days after being 
notified by the lender to choose a repayment schedule.
    The Department has determined that this modification to the current 
notification requirements would not increase the burden associated with 
Sec.  682.209 and the associated collection, OMB Control No. 1845-0020.

Section 682.211(f)--Forbearance

    The final regulations would provide for a period of forbearance, 
not to exceed 60 days, necessary for the lender to collect and process 
documentation supporting the borrower's eligibility for loan 
forgiveness under the IBR plan. The lender must notify the borrower

[[Page 63245]]

that the requirement to make payments on the loans for which 
forgiveness was requested has been suspended pending approval of the 
forgiveness by the guaranty agency.
    The addition of this new type of forbearance under the IBR plan is 
estimated to increase the burden hours for lenders and guaranty 
agencies by 31,414 hours under OMB Control Number 1845-0020. (Note: 
This is an administrative forbearance and does not require an OMB-
approved form.)

Section 682.215--Income-Based Repayment Plan

    The final regulations provide that a borrower may elect the IBR 
plan only if the borrower has a partial financial hardship. Under this 
plan, the borrower's aggregate monthly loan payments would be limited 
to no more than 15 percent of the amount by which the borrower's AGI 
exceeds 150 percent of the poverty line income applicable to the 
borrower's family size, divided by 12. If a borrower no longer has a 
partial financial hardship, the borrower may continue to make payments 
under the IBR plan, but the loan holder must recalculate the borrower's 
monthly payment amount. If the borrower no longer wishes to pay under 
the IBR plan, the borrower must pay under a standard repayment plan as 
calculated by the loan holder.
    The final regulations provide that a loan holder would require the 
borrower, in order to establish his or her eligibility for the IBR 
plan, to provide written consent to the disclosure of AGI and other tax 
return information by the IRS to the loan holder. The borrower also 
would be required to annually certify his or her family size; otherwise 
the loan holder would assume a family size of one. To determine whether 
a borrower qualifies for loan forgiveness after 25 years, the loan 
holder must make a determination that the borrower has established 
eligibility for loan forgiveness by making payments for 25 years, or, 
that, through a combination of monthly payments and economic hardship 
deferments, the borrower has made the equivalent of 25 years of 
payments. The loan holder is required, no later than 60 days after it 
makes the determination that the borrower is eligible for loan 
forgiveness, to request payment from the guaranty agency. Within 45 
days of receiving the loan holder's request for payment, the guaranty 
agency must determine if the borrower meets the eligibility 
requirements for loan forgiveness and must notify the loan holder. If 
the guaranty agency determines that the borrower is eligible for loan 
forgiveness, it must pay the loan holder within the same 45-day period. 
The holder must notify the borrower within 30 days of being notified by 
the guaranty agency of its determination on the borrower's eligibility.
    We estimate that the final regulations will increase burden for 
borrowers, lenders and guaranty agencies by 185,778 hours, under new 
OMB Control Number 1845-0086.

Section 682.302(f)--Eligible Not-for-Profit Holder

    The final regulations would require a State, non-profit entity, or 
eligible lender trustee to provide to the Secretary a certification on 
the State or non-profit entity's letterhead signed by the State or non-
profit entity's Chief Executive Officer (CEO) which states the basis 
upon which the entity qualifies as a State or non-profit entity. The 
submission must include documentation establishing the entity's State 
or non-profit status. In addition, the submission must include the name 
and lender identification number for which the eligible not-for-profit 
designation is being certified. For an entity establishing non-profit 
status under section 150(d) of the Internal Revenue Code, the 
submission must include copies of the requests of the State or 
political subdivision or subdivisions thereof, or requirements 
described in section 150(d) of the Internal Revenue Code, and the CEO's 
additional certification that the entity has not elected to cease its 
status as a qualified scholarship funding corporation. A separately 
submitted certification or opinion by the State or non-profit entity's 
external legal counsel or the office of the attorney general of the 
State, must be submitted with supporting documentation that shows that 
the State or non-profit entity is a constituted State entity by 
operation of specific State law, has been designated by the State or 
one or more political subdivisions of the State to serve as a qualified 
scholarship funding corporation, and is incorporated under State law as 
a not-for-profit organization, or is an entity described in section 
501(c)(3) of the Internal Revenue Code, or has in effect a relationship 
with an eligible lender under which the lender is acting as trustee on 
behalf of the State or non-profit entity.
    Under the final regulations, once an entity has been approved as an 
eligible not-for-profit holder, the entity must provide to the 
Secretary an annual certification on the State or non-profit entity's 
letterhead signed by the CEO, which includes the name and lender 
identification number(s) of the entities for which designation is being 
recertified. The annual certification must state that the State or non-
profit entity has not altered its status as a State or non-profit 
entity since its prior certification to the Secretary and that it 
continues to satisfy the requirements of an eligible not-for-profit 
holder either in its own right or through a trust agreement with an 
eligible lender trustee. A copy of its IRS Form 990--Return of 
Organization Exempt From Income Tax, if applicable, must be submitted 
at the same time the entity files that return with the IRS as a part of 
the annual certification.
    Within 10 days of becoming aware of the occurrence of a change that 
may result in a State or non-profit entity that has been designated an 
eligible not-for-profit holder, either directly or through an eligible 
lender trustee, losing that eligibility, the State or non-profit entity 
must submit details of the change to the Secretary.
    We estimate that the final regulations will increase burden for 
States, non-profit entities, and eligible lender trustees by 105 hours 
in the new OMB Control Number 1845-0085.

Section 685.205(a)--Forbearance

    The final regulations would provide for loan forbearance for a 
borrower who qualifies for a post-active duty student deferment, but 
does not qualify for a military service or other deferment, and is 
engaged in active State duty for a period of more than 30 consecutive 
days.
    The addition of a new type of forbearance will increase the burden 
hours associated with OMB Control Number 1845-0031, the Direct Loan 
Program General Forbearance Request form. The Department will submit a 
full collections package with a revised form by December 2008.

Section 685.219--Public Service Loan Forgiveness

    The Public Service Loan Forgiveness Program created by the CCRAA is 
intended to encourage individuals to enter and continue in full-time 
public service employment by forgiving the remaining balance of their 
eligible Direct loans after they satisfy the public service and loan 
repayment requirements of this section.
    The burden associated with the final regulations for this program 
will be reported in the paperwork clearance package for a new public 
service loan forgiveness application form in the new OMB Control Number 
1845-XXX3 that the Department will develop.

[[Page 63246]]

Section 685.220--Consolidation

    The final regulations permit a borrower to consolidate a FFEL 
Consolidation Loan into the Federal Direct Loan Program for the purpose 
of participating in the Public Service Loan Forgiveness Program.
    We estimate that the expected increase in the number of FFEL 
Program borrowers who wish to consolidate into the Federal Direct Loan 
Program for the purpose of using the public loan forgiveness program 
will increase the burden hours associated with OMB Control Number 1845-
0053 (Direct Consolidation Loan Application and Promissory Note). The 
Department will submit an OMB 83-C indicating the increased burden 
associated with this collection by October 2008.

Section 685.221--Income-Based Repayment Plan

    The final regulations provide that a borrower may elect the IBR 
plan only if the borrower has a partial financial hardship. Under this 
plan, the borrower's aggregate monthly loan payments would be limited 
to no more than 15 percent of the amount by which the borrower's AGI 
exceeds 150 percent of the poverty guideline for the borrower's family 
size, divided by 12. If a borrower no longer has a partial financial 
hardship, the borrower may continue to make payments under the IBR 
plan, but the Secretary must recalculate the borrower's monthly payment 
amount. If the borrower no longer wishes to pay under the IBR plan, the 
borrower must pay under the standard repayment plan as calculated by 
the Secretary.
    The final regulations provide that the Secretary requires a 
borrower to establish his or her eligibility for the IBR plan by 
providing written consent to the disclosure of AGI and other tax return 
information by the IRS to the Secretary. The borrower annually 
certifies his or her family size; otherwise the Secretary assumes a 
family size of one. To qualify for loan forgiveness after 25 years, a 
determination must be made that the borrower has established 
eligibility for loan forgiveness by making payments for 25 years, or 
that through a combination of monthly payments and economic hardship 
deferments, the borrower has made the equivalent of 25 years of 
payments.
    The Department plans to revise the current collection approved 
under OMB Control Number 1845-0017, the Direct Loan Program Income 
Contingent Repayment Plan Consent to Disclosure of Tax Information, so 
that it may also be used to collect the income information needed for 
the Income-Based Repayment Plan. The resulting increased burden 
associated with OMB Control Number 1845-0017 will be reported in the 
paperwork clearance package for the revised form. The Department 
expects to submit the revised form for clearance by December 2008.

Collection of Information

    Consistent with the discussion in this Paperwork Reduction Act of 
1995 section, the following chart describes the sections of the final 
regulations involving information collections, the information being 
collected and the collections the Department has submitted, or will 
submit, to OMB for approval and public comment under the Paperwork 
Reduction Act of 1995.

----------------------------------------------------------------------------------------------------------------
         Regulatory section                  Information collection                      Collection
----------------------------------------------------------------------------------------------------------------
 674.34, 682.210, and 685.204......   This final regulation incorporates    OMB 1845-0080. This is a revision of
                                      previous interpretive guidance         an existing collection. A separate
                                      related to the military service        60-day Federal Register notice will
                                      deferment and the active duty          be published to solicit comment on
                                      student deferment.                     the revised form once it is
                                                                             developed. The revised form will be
                                                                             submitted for clearance by
                                                                             November, 2008.
 682.205...........................   This final regulation establishes      OMB 1845-0020. There is no change
                                      the disclosure requirements for        in burden.
                                      lenders.
 682.209...........................   This final regulation adds, and        OMB 1845-0020. There is no change
                                      makes available, the income-based      in burden.
                                      repayment plan to FFEL borrowers.
 682.211...........................   This final regulation establishes      OMB 1845-0020. This is a revision
                                      the timeframe that a lender has to     of an existing collection which is
                                      collect and process required           being submitted to OMB with this
                                      documentation.                         final regulation.
 682.215...........................   This final regulation provides for     OMB 1845-0086. This is a new
                                      the collection of a borrower's         collection which is being submitted
                                      income information from the IRS and    to OMB with this final regulation.
                                      an annual certification from a
                                      borrower who elects the income-based
                                      repayment plan.
 682.302...........................  This final regulation requires the      OMB 1845-0085. This is a new
                                      submission of documentation by a       collection which is being submitted
                                      State, a non-profit entity, or an      to OMB with this final regulation.
                                      eligible lender trustee to the
                                      Secretary to establish eligibility
                                      for not-for-profit holder status.
 685.205...........................  This final regulation provides for      OMB 1845-0031. This will be a
                                      the collection of information to       revision of an existing collection.
                                      determine if a Direct loan borrower    A separate 60-day Federal Register
                                      who is not eligible for a post-        notice will be published to solicit
                                      active duty student loan deferment     comment on the revised form once it
                                      may receive a forbearance.             is developed. The revised form will
                                                                             be submitted for clearance by
                                                                             December, 2008.
 685.219...........................  This final regulation establishes a     OMB 1845-XXX3. This will be a new
                                      new Public Service Loan Forgiveness    collection. A separate 60-day
                                      program.                               Federal Register notice will be
                                                                             published to solicit comment on
                                                                             this form once it is developed.
 685.220...........................  This final regulation provides for      OMB 1845-0053. This will increase
                                      the consolidation of FFEL loans into   the burden associated with an
                                      Direct Consolidation loans for the     existing collection. The increase
                                      purpose of using the Public Service    will be reported on OMB Form 83-C
                                      Loan Forgiveness program.              by October, 2008.
 685.221...........................  This final regulation provides for      OMB 1845-0017. This will be a
                                      the collection of the borrower's       revision of an existing collection.
                                      income information from the IRS and    A separate 60-day Federal Register
                                      an annual certification from the       notice will be published to solicit
                                      borrower who elects the income-based   comment on the revised form once it
                                      repayment plan.                        is developed. The revised form will
                                                                             be submitted for clearance by
                                                                             December, 2008.
----------------------------------------------------------------------------------------------------------------


[[Page 63247]]

Assessment of Educational Impact

    In the NPRM, we requested comments on whether the proposed 
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 the NPRM and on 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.

Electronic Access to This Document

    You may view this document, as well as all other Department of 
Education documents published in the Federal Register, in text or Adobe 
Portable Document Format (PDF) on the Internet at the following site: 
http://www.ed.gov/news/FedRegister.
    To use PDF you must have Adobe Acrobat Reader, which is available 
free at this site. If you have questions about using PDF, call the U.S. 
Government Printing Office (GPO), toll free, at 1-888-293-6498; or in 
the Washington, DC, area at (202) 512-1530.

    Note: The official version of this document is the document 
published in the Federal Register. Free Internet access to the 
official edition of the Federal Register and the Code of Federal 
Regulations is available on GPO Access at: http://www.access.gpo.gov/nara/index.html.


(Catalog of Federal Domestic Assistance Number: 84.032 Federal 
Family Education Loan Program; 84.037 Federal Perkins Loan Program; 
and 84.268 William D. Ford Federal Direct Loan Program)

List of Subjects in 34 CFR Parts 674, 682, and 685

    Administrative practice and procedure, Colleges and universities, 
Education, Loan programs--education, Reporting and recordkeeping 
requirements, Student aid, and Vocational education.

    Dated: October 15, 2008.
Margaret Spellings,
Secretary of Education.

0
For the reasons discussed in the preamble, the Secretary amends parts 
674, 682, and 685 of title 34 of the Code of Federal Regulations as 
follows:

PART 674--FEDERAL PERKINS LOAN PROGRAM

0
1. The authority citation for part 674 continues to read as follows:

    Authority: 20 U.S.C. 1087aa-1087hh and 20 U.S.C. 421-429 unless 
otherwise noted.


0
2. Section 674.34 is amended by:
0
A. In the introductory text of paragraph (e), removing the reference 
``(e)(6)'' from the cross-reference in the parenthetical phrase that 
appears after the word ``time'' and adding, in its place, the reference 
``(e)(5)'', and removing the words ``through (e)(6)'' and adding, in 
their place, the words ``through (e)(5)''.
0
B. In paragraph (e)(1), removing the word ``FDSL'' and adding, in its 
place, ``Federal Direct Loan Program'', and adding the word ``the'' 
before the words ``FFEL programs''.
0
C. In paragraph (e)(3)(ii), removing the words ``poverty line 
applicable to the borrower's family size, as determined in accordance 
with section 673(2) of the Community Service Block Grant Act'' and 
adding, in its place, the words ``poverty guideline applicable to the 
borrower's family size as published annually by the Department of 
Health and Human Services pursuant to 42 U.S.C. 9902(2). If a borrower 
is not a resident of a State identified in the poverty guidelines, the 
poverty guideline to be used for the borrower is the poverty guideline 
(for the relevant family size) used for the 48 contiguous States''.
0
D. Removing paragraph (e)(5).
0
E. Redesignating paragraphs (e)(6), (e)(7), (e)(8), (e)(9), and (e)(10) 
as paragraphs (e)(5), (e)(6), (e)(7), (e)(8), and (e)(9) respectively.
0
F. In newly redesignated paragraph (e)(6), removing the words ``or 
(e)(5)''.
0
G. In newly redesignated paragraph (e)(7), removing the words ``, or 
(e)(5)'', removing the punctuation ``,'' after the reference 
``(e)(3)'', and adding the word ``and'' after the reference ``(e)(3)''.
0
H. In newly redesignated paragraph (e)(8), adding ``(i)'' after the 
number ``(8)'', removing the word ``paragraphs'' and adding in its 
place ``paragraph'', and removing the words ``and (e)(5)''.
0
I. Adding new paragraph (e)(8)(ii).
0
J. In newly redesignated paragraph (e)(9), removing the words ``and 
(e)(5)''.

0
K. In paragraph (h)(1), adding the heading ``Military service 
deferment'' before the paragraph designation ``(1)'' and adding the 
punctuation ``,'' after the word ``principal'' and after the word 
``accrue''.
0
L. In paragraph (h)(4) introductory text, removing the word ``section'' 
and adding, in its place, the word ``paragraph''.
0
M. Revising paragraph (h)(6).
0
N. Adding new paragraph (h)(7).
0
O. Adding a heading to paragraph (i).
0
P. In paragraph (i)(1), revising the introductory text.
0
Q. In paragraph (i)(1)(ii), adding the words ``, on at least a half-
time basis,'' after the word ``enrolled''.
0
R. Revising paragraph (i)(2).
0
S. In paragraph (i)(3), adding the words ``, on at least a half-time 
basis,'' after the word ``status'' each time it appears.
0
T. Adding new paragraph (i)(4).
0
U. In paragraph (j), removing the words ``paragraph (j)'' and adding, 
in their place, the words ``paragraph (k)''.
    The revisions and additions read as follows:


Sec.  674.34  Deferment of repayment--Federal Perkins loans, NDSLs, and 
Defense loans.

* * * * *
    (e) * * *
    (8)(i) * * *
    (ii) For purposes of paragraph (e)(3)(ii) of this section, family 
size means the number that is determined by counting the borrower, the 
borrower's spouse, and the borrower's children, including unborn 
children who will be born during the period covered by the deferment, 
if the children receive more than half their support from the borrower. 
A borrower's family size includes other individuals if, at the time the 
borrower requests the economic hardship deferment, the other 
individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs.
* * * * *
    (h) * * *
    (6) For a borrower whose active duty service includes October 1, 
2007, or begins on or after that date, the deferment period ends 180 
days after the demobilization date for each period of service described 
in paragraphs (h)(1)(i) and (h)(1)(ii) of this section.
    (7) Without supporting documentation, a military service deferment 
may be granted to an otherwise eligible borrower for a period not to 
exceed 12 months from the date of the qualifying eligible service based 
on a request from the borrower or the borrower's representative.
    (i) Post-active duty student deferment. (1) Effective October 1, 
2007, a borrower of a Federal Perkins loan, an NDSL, or a Defense loan 
serving on active duty military service on that date, or who begins 
serving on or after that date, need not pay principal, and interest 
does not accrue for up to 13 months following the conclusion of the 
borrower's active duty military service and initial grace period if--
     * * *

[[Page 63248]]

    (2) As used in paragraph (i)(1) of this section ``Active duty'' 
means active duty as defined in section 101(d)(1) of title 10, United 
States Code, for at least a 30-day period, except that--
    (i) Active duty includes active State duty for members of the 
National Guard under which the Governor activates National Guard 
personnel based on State statute or policy and the activities of the 
National Guard are paid for with State funds;
    (ii) Active duty includes full-time National Guard duty under which 
the Governor is authorized, with the approval of the President or the 
U.S. Secretary of Defense, to order a member to State active duty and 
the activities of the National Guard are paid for with Federal funds;
    (iii) Active duty does not include active duty for training or 
attendance at a service school; and
    (iv) Active duty does not include employment in a full-time, 
permanent position in the National Guard unless the borrower employed 
in such a position is reassigned to active duty under paragraph 
(i)(2)(i) of this section or full-time National Guard duty under 
paragraph (i)(2)(ii) of this section.
* * * * *
    (4) If a borrower qualifies for both a military service deferment 
and a post-active duty student deferment under both paragraphs (h) and 
(i) of this section, the 180-day post-demobilization military service 
deferment period and the 13-month post-active duty student deferment 
period apply concurrently.
* * * * *

PART 682--FEDERAL FAMILY EDUCATION LOAN (FFEL) PROGRAM

0
3. The authority citation for part 682 continues to read as follows:

    Authority: 20 U.S.C. 1071 to 1087-2 unless otherwise noted.


0
4. Section 682.201 is amended by:
0
A. In paragraph (e)(3), removing the word ``and'' at the end of the 
paragraph.
0
B. In paragraph (e)(4), removing the punctuation ``.'' at the end of 
the paragraph and adding, in its place, the words, ``; and''.
0
C. Adding a new paragraph (e)(5) to read as follows:


Sec.  682.201  Eligible borrowers.

* * * * *
    (e) * * *
    (5) A FFEL borrower may consolidate his or her loans (including a 
FFEL Consolidation Loan) into the Federal Direct Consolidation Loan 
Program for the purpose of using the Public Service Loan Forgiveness 
Program.

0
5. Section 682.205 is amended by:
0
A. Revising the heading to paragraph (h).
0
B. Revising paragraph (h)(1).
    The revisions read as follows:


Sec.  682.205  Disclosure requirements for lenders.

* * * * *
    (h) Notice of availability of income-sensitive and income-based 
repayment options.
    (1) At the time of offering a borrower a loan and at the time of 
offering a borrower repayment options, the lender must provide the 
borrower with a notice that informs the borrower of the availability of 
income-sensitive and, except for parent PLUS borrowers and 
Consolidation Loan borrowers whose Consolidation Loan paid off one or 
more parent PLUS Loans, income-based repayment plans. This information 
may be provided in a separate notice or as part of the other 
disclosures required by this section. The notice must inform the 
borrower--
    (i) That the borrower is eligible for income-sensitive repayment 
and may be eligible for income-based repayment, including through loan 
consolidation;
    (ii) Of the procedures by which the borrower can elect income-
sensitive or income-based repayment; and
    (iii) Of where and how the borrower may obtain more information 
concerning income-sensitive and income-based repayment plans.
* * * * *

0
6. Section 682.209 is amended by:
0
A. Revising paragraph (a)(6)(iii).
0
B. Revising paragraph (a)(6)(iv).
0
C. Revising paragraph (a)(6)(v).
0
D. Redesignating paragraphs (a)(6)(x) and (a)(6)(xi) as (a)(6)(xi) and 
(a)(6)(xii), respectively.
0
E. Adding a new paragraph (a)(6)(x).
0
F. In newly redesignated paragraph (a)(6)(xi), adding the words ``, or 
at any time in the case of a borrower in an income-based repayment 
plan'' immediately after the word ``annually''.
0
G. In paragraph (a)(8), adding the words ``, except in the case of 
payments made under an income-based repayment plan.'' immediately after 
the words ``five dollars'' the first time those words appear.
0
H. In paragraph (b)(1), removing the word ``The'' at the beginning of 
the sentence and adding, in its place, the words ``Except in the case 
of payments made under an income-based repayment plan, the''.
0
I. In paragraph (b)(2)(ii), in the second sentence, removing the words 
``borrower coupon book'' and adding, in their place, ``borrower's 
coupon book''.
0
J. In paragraph (c)(1)(i), removing the word ``or'' the first time it 
appears and adding the words ``, or income-based'' immediately after 
the word ``extended''.
    The revisions and additions read as follows:


Sec.  682.209  Repayment of a loan.

* * * * *
    (a) * * *
    (6) * * *
    (iii) Not more than six months prior to the date that the 
borrower's first payment is due, the lender must offer the borrower a 
choice of a standard, income-sensitive, income-based, graduated, or, if 
applicable, an extended repayment schedule.
    (iv) Except in the case of an income-based repayment schedule, the 
repayment schedule must require that each payment equal at least the 
interest that accrues during the interval between scheduled payments.
    (v) The lender shall require the borrower to repay the loan under a 
standard repayment schedule described in paragraph (a)(6)(vi) of this 
section if the borrower--
    (A) Does not select an income-sensitive, income-based, graduated, 
or, if applicable, an extended repayment schedule within 45 days after 
being notified by the lender to choose a repayment schedule;
    (B) Chooses an income-sensitive repayment schedule, but does not 
provide the documentation requested by the lender under paragraph 
(a)(6)(viii)(C) of this section within the time period specified by the 
lender; or
    (C) Chooses an income-based repayment schedule, but does not 
provide the income documentation requested by the lender under Sec.  
682.215(e)(1)(i) within the time period specified by the lender.
* * * * *
    (x) Under an income-based repayment schedule, the borrower repays 
the loan in accordance with Sec.  682.215.
* * * * *

0
7. Section 682.210 is amended by:
0
A. Revising paragraph (s)(6)(iii)(B).
0
B. Removing paragraphs (s)(6)(iv), (s)(6)(v), and (s)(6)(vii).
0
C. Redesignating paragraphs (s)(6)(vi), (s)(6)(viii), (s)(6)(ix), 
(s)(6)(x) and (s)(6)(xi) as paragraphs (s)(6)(iv), (s)(6)(v), 
(s)(6)(vi), (s)(6)(vii), (s)(6)(viii) respectively.
0
D. In newly redesignated (s)(6)(v), removing the word ``paragraphs'' 
and adding in its place ``paragraph'', and removing the words ``through 
(v)''.
0
E. In newly redesignated (s)(6)(vi), removing the word ``paragraphs'' 
and adding in its place ``paragraph'', and removing the words ``through 
(v)''.
0
F. Adding a new paragraph (s)(6)(ix).

[[Page 63249]]

0
G. In paragraph (t)(1), removing the word ``an'' and adding, in its 
place, the word ``a'' and by removing the word ``loans'' and adding, in 
its place, the word ``loan''.
0
H. In paragraph (t)(2), removing the word ``The'' at the beginning of 
the sentence, and adding, in its place, the words ``For a borrower 
whose active duty service includes October 1, 2007, or begins on or 
after that date, the'' and by removing the words ``for the service'' 
and adding, in their place, the words ``for each period of service''.
0
I. In paragraph (t)(6), removing the word ``section'' and adding, in 
its place, the word ``paragraph''.
0
J. Adding new paragraph (t)(9).
0
K. Revising the heading of paragraph (u) and the introductory text to 
paragraph (u)(1).
0
L. In paragraph (u)(1)(ii), adding the words ``, on at least a half-
time basis,'' after the word ``enrolled''.
0
M. Revising paragraph (u)(2).
0
N. In paragraph (u)(3), adding the words ``, on at least a half-time 
basis,'' after the word ``status'' each time it appears.
0
O. Redesignating paragraph (u)(4) as (u)(5).
0
P. Adding new paragraph (u)(4).
    The revisions and additions read as follows:


Sec.  682.210  Deferment.

* * * * *
    (s) * * *
    (6) * * *
    (iii) * * *
    (B) An amount equal to 150 percent of the poverty guideline 
applicable to the borrower's family size as published annually by the 
Department of Health and Human Services pursuant to 42 U.S.C. 9902(2). 
If a borrower is not a resident of a State identified in the poverty 
guidelines, the poverty guideline to be used for the borrower is the 
poverty guideline (for the relevant family size) used for the 48 
contiguous States.
* * * * *
    (ix) For purposes of paragraph (s)(6)(iii)(B) of this section, 
family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the period covered by the 
deferment, if the children receive more than half their support from 
the borrower. A borrower's family size includes other individuals if, 
at the time the borrower requests the economic hardship deferment, the 
other individuals--
    (A) Live with the borrower; and
    (B) Receive more than half their support from the borrower and will 
continue to receive this support from the borrower for the year the 
borrower certifies family size. Support includes money, gifts, loans, 
housing, food, clothes, car, medical and dental care, and payment of 
college costs.
* * * * *
    (t) * * *
    (9) Without supporting documentation, a military service deferment 
may be granted to an otherwise eligible borrower for a period not to 
exceed the initial 12 months from the date the qualifying eligible 
service began based on a request from the borrower or the borrower's 
representative.
    (u) Post-active duty student deferment. (1) Effective October 1, 
2007, a borrower who receives a FFEL Program loan and is serving on 
active duty on that date, or begins serving on or after that date, is 
entitled to receive a post-active duty student deferment for 13 months 
following the conclusion of the borrower's active duty military service 
and any applicable grace period if--* * *
    (2) As used in paragraph (u)(1) of this section, ``active duty'' 
means active duty as defined in section 101(d)(1) of title 10, United 
States Code for at least a 30-day period, except that--
    (i) Active duty includes active State duty for members of the 
National Guard under which a Governor activates National Guard 
personnel based on State statute or policy and the activities of the 
National Guard are paid for with State funds;
    (ii) Active duty includes full-time National Guard duty under which 
a Governor is authorized, with the approval of the President or the 
U.S. Secretary of Defense, to order a member to State active duty and 
the activities of the National Guard are paid for with Federal funds;
    (iii) Active duty does not include active duty for training or 
attendance at a service school; and
    (iv) Active duty does not include employment in a full-time, 
permanent position in the National Guard unless the borrower employed 
in such a position is reassigned to active duty under paragraph 
(u)(2)(i) of this section or full-time National Guard duty under 
paragraph (u)(2)(ii) of this section.
* * * * *
    (4) If a borrower qualifies for both a military service deferment 
and a post-active duty student deferment, the 180-day post-
demobilization military service deferment period and the 13-month post-
active duty student deferment period apply concurrently.
* * * * *

0
8. Section 682.211 is amended by:
0
A. Adding a new paragraph (f)(13).
0
B. Adding a new paragraph (f)(14).
0
C. In paragraph (h)(2)(ii)(C), removing the punctuation at the end and 
adding, in its place, ``; and''.
0
D. Adding new paragraph (h)(2)(iii).
    The additions read as follows:


Sec.  682.211  Forbearance.

* * * * *
    (f) * * *
    (13) For a period not to exceed 60 days necessary for the lender to 
collect and process documentation supporting the borrower's eligibility 
for loan forgiveness under the income-based repayment program. The 
lender must notify the borrower that the requirement to make payments 
on the loans for which forgiveness was requested has been suspended 
pending approval of the forgiveness by the guaranty agency.
    (14) For a period of delinquency at the time a borrower makes a 
change to the repayment plan.
* * * * *
    (h) * * *
    (2) * * *
    (iii) In yearly increments (or a lesser period equal to the actual 
period for which the borrower is eligible) when a member of the 
National Guard who qualifies for a post-active duty student deferment, 
but does not qualify for a military service deferment or other 
deferment, is engaged in active State duty as defined in Sec.  
682.210(u)(2)(i) and (ii) for a period of more than 30 consecutive 
days, beginning--
    (A) On the day after the grace period expires for a Stafford loan 
that has not entered repayment; or
    (B) On the day after the borrower ceases at least half-time 
enrollment, for a FFEL loan in repayment.
* * * * *

0
9. Redesignate Sec.  682.215 as Sec.  682.216.

0
10. Add a new Sec.  682.215 to read as follows:


Sec.  682.215  Income-based repayment plan.

    (a) Definitions. As used in this section--
    (1) Adjusted gross income (AGI) means the borrower's adjusted gross 
income as reported to the Internal Revenue Service. For a married 
borrower filing jointly, AGI includes both the borrower's and spouse's 
income. For a married borrower filing separately, AGI includes only the 
borrower's income.
    (2) Eligible loan means any outstanding loan made to a borrower 
under the FFEL and Direct Loan programs except for a defaulted loan, a 
FFEL or Direct PLUS Loan made to a

[[Page 63250]]

parent borrower, or a FFEL or Direct Consolidation Loan that repaid a 
FFEL or Direct PLUS Loan made to a parent borrower.
    (3) Family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the year the borrower certifies 
family size, if the children receive more than half their support from 
the borrower. A borrower's family size includes other individuals if, 
at the time the borrower certifies family size, the other individuals--
    (i) Live with the borrower; and
    (ii) Receive more than half their support from the borrower and 
will continue to receive this support from the borrower for the year 
the borrower certifies family size. Support includes money, gifts, 
loans, housing, food, clothes, car, medical and dental care, and 
payment of college costs.
    (4) Partial financial hardship means a circumstance in which the 
annual amount due on all of a borrower's eligible loans, as calculated 
under a standard repayment plan based on a 10-year repayment period, 
exceeds 15 percent of the difference between the borrower's AGI and 150 
percent of the poverty guideline for the borrower's family size.
    (5) Poverty guideline refers to the income categorized by State and 
family size in the poverty guidelines published annually by the United 
States Department of Health and Human Services pursuant to 42 U.S.C. 
9902(2). If a borrower is not a resident of a State identified in the 
poverty guidelines, the poverty guideline to be used for the borrower 
is the poverty guideline (for the relevant family size) used for the 48 
contiguous States.
    (b) Repayment plan. (1) A borrower may elect the income-based 
repayment plan only if the borrower has a partial financial hardship. 
Except as provided under paragraph (b)(1)(i), (b)(1)(ii), and 
(b)(1)(iii) of this section, the borrower's aggregate monthly loan 
payments are limited to no more than 15 percent of the amount by which 
the borrower's AGI exceeds 150 percent of the poverty line income 
applicable to the borrower's family size, divided by 12. The loan 
holder adjusts the calculated monthly payment if--
    (i) The total amount of the borrower's eligible loans includes 
loans not held by the loan holder, in which case the loan holder 
determines the borrower's adjusted monthly payment by multiplying the 
calculated payment by the percentage of the total outstanding principal 
amount of eligible loans that are held by the loan holder;
    (ii) The calculated amount under paragraph (b)(1) or (b)(1)(i) of 
this section is less than $5.00, in which case the borrower's monthly 
payment is $0.00; or
    (iii) The calculated amount under paragraph (b)(1) or (b)(1)(i) of 
this section is equal to or greater than $5.00 but less than $10.00, in 
which case the borrower's monthly payment is $10.00.
    (2) A borrower with eligible loans held by two or more loan holders 
must request income-based repayment from each loan holder if the 
borrower wants to repay all of his or her eligible loans under an 
income-based repayment plan. Each loan holder must apply the payment 
calculation rules in paragraphs (b)(1)(ii) and (iii) of this section to 
loans they hold.
    (3) If a borrower elects an income-based repayment plan, the loan 
holder must, unless the borrower requests otherwise, require that all 
eligible loans owed by the borrower to that holder be repaid under the 
income-based repayment plan.
    (4) If the borrower's monthly payment amount is not sufficient to 
pay the accrued interest on the borrower's subsidized Stafford Loans or 
the subsidized portion of the borrower's Federal Consolidation loan, 
the Secretary pays to the holder the remaining accrued interest for a 
period not to exceed three consecutive years from the established 
repayment period start date on each loan repaid under the income-based 
repayment plan. On a Consolidation Loan that repays loans on which the 
Secretary has paid accrued interest under this section, the three-year 
period includes the period for which the Secretary paid accrued 
interest on the underlying loans. The three-year period does not 
include any period during which the borrower receives an economic 
hardship deferment.
    (5) Except as provided in paragraph (b)(4) of this section, accrued 
interest is capitalized at the time the borrower chooses to leave the 
income-based repayment plan or no longer has a partial financial 
hardship.
    (6) If the borrower's monthly payment amount is not sufficient to 
pay any principal due, the payment of that principal is postponed until 
the borrower chooses to leave the income-based repayment plan or no 
longer has a partial financial hardship.
    (7) The special allowance payment to a lender during the period in 
which the borrower has a partial financial hardship under an income-
based repayment plan is calculated on the principal balance of the loan 
and any accrued interest unpaid by the borrower.
    (8) The repayment period for a borrower under an income-based 
repayment plan may be greater than 10 years.
    (c) Payment application and prepayment. (1) The loan holder shall 
apply any payment made under an income-based repayment plan in the 
following order:
    (i) Accrued interest.
    (ii) Collection costs.
    (iii) Late charges.
    (iv) Loan principal.
    (2) The borrower may prepay the whole or any part of a loan at any 
time without penalty.
    (3) If the prepayment amount equals or exceeds a monthly payment 
amount of $10.00 or more under the repayment schedule established for 
the loan, the loan holder shall apply the prepayment consistent with 
the requirements of Sec.  682.209(b)(2)(ii).
    (4) If the prepayment amount exceeds the monthly payment amount of 
$0.00 under the repayment schedule established for the loan, the loan 
holder shall apply the prepayment consistent with the requirements of 
paragraph (c)(1) of this section.
    (d) Changes in the payment amount. (1) If a borrower no longer has 
a partial financial hardship, the borrower may continue to make 
payments under the income-based repayment plan but the loan holder must 
recalculate the borrower's monthly payment. The loan holder also 
recalculates the monthly payment for a borrower who chooses to stop 
making income-based payments. In either case, as a result of the 
recalculation--
    (i) The maximum monthly amount that the loan holder may require the 
borrower to repay is the amount the borrower would have paid under the 
FFEL standard repayment plan based on a 10-year repayment period on the 
borrower's eligible loans that were outstanding at the time the 
borrower began repayment on the loans with that holder under the 
income-based repayment plan; and
    (ii) The borrower's repayment period based on the recalculated 
payment amount may exceed 10 years.
    (2) If a borrower no longer wishes to pay under the income-based 
repayment plan, the borrower must pay under the FFEL standard repayment 
plan and the loan holder recalculates the borrower's monthly payment 
based on--
    (i) The time remaining under the maximum ten-year repayment period 
for the amount of the borrower's loans that were outstanding at the 
time the

[[Page 63251]]

borrower discontinued paying under the income-based repayment plan; or
    (ii) For a Consolidation Loan, the applicable repayment period 
remaining specified in Sec.  682.209(h)(2) for the total amount of that 
loan and the balance of other student loans that was outstanding at the 
time the borrower discontinued paying under the income-based repayment 
plan.
    (e) Eligibility documentation and verification. (1) The loan holder 
determines whether a borrower has a partial financial hardship to 
qualify for the income-based repayment plan for the year the borrower 
elects the plan and for each subsequent year that the borrower remains 
on the plan. To make this determination, the loan holder requires the 
borrower to--
    (i)(A) Provide written consent to the disclosure of AGI and other 
tax return information by the Internal Revenue Service to the loan 
holder. The borrower provides consent by signing a consent form and 
returning it to the loan holder;
    (B) If the borrower's AGI is not available, or the loan holder 
believes that the borrower's reported AGI does not reasonably reflect 
the borrower's current income, the loan holder may use other 
documentation provided by the borrower to verify income; and
    (ii) Annually certify the borrower's family size. If the borrower 
fails to certify family size, the loan holder must assume a family size 
of one for that year.
    (2) The loan holder designates the repayment option described in 
paragraph (d)(1) of this section for any borrower who selects the 
income-based repayment plan but--
    (i) Fails to renew the required written consent for income 
verification; or
    (ii) Withdraws consent and does not select another repayment plan.
    (f) Loan forgiveness. (1) To qualify for loan forgiveness after 25 
years, the borrower must have participated in the income-based 
repayment plan and satisfied at least one of the following conditions 
during that period--
    (i) Made reduced monthly payments under a partial financial 
hardship as provided under paragraph (b)(1) of this section. Monthly 
payments of $0.00 qualify as reduced monthly payments as provided in 
paragraph (b)(1)(ii) of this section;
    (ii) Made reduced monthly payments after the borrower no longer had 
a partial financial hardship or stopped making income-based payments as 
provided in paragraph (d)(1) of this section;
    (iii) Made monthly payments under any repayment plan, that were not 
less than the amount required under the FFEL standard repayment plan 
described in Sec.  682.209(a)(6)(vi) with a 10-year repayment period;
    (iv) Made monthly payments under the FFEL standard repayment plan 
described in Sec.  682.209(a)(6)(vi) based on a 10-year repayment 
period for the amount of the borrower's loans that were outstanding at 
the time the borrower first selected the income-based repayment plan; 
or
    (v) Received an economic hardship deferment on eligible FFEL loans.
    (2) As provided under paragraph (f)(4) of this section, the 
Secretary repays any outstanding balance of principal and accrued 
interest on FFEL loans for which the borrower qualifies for forgiveness 
if the guaranty agency determines that--
    (i) The borrower made monthly payments under one or more of the 
repayment plans described in paragraph (f)(1) of this section, 
including a monthly amount of $0.00 as provided in paragraph (b)(1)(ii) 
of this section; and
    (ii)(A) The borrower made those monthly payments each year for a 
25-year period; or
    (B) Through a combination of monthly payments and economic hardship 
deferments, the borrower made the equivalent of 25 years of payments.
    (3) For a borrower who qualifies for the income-based repayment 
plan, the beginning date for the 25-year period is--
    (i) For a borrower who has a FFEL Consolidation Loan, the date the 
borrower made a payment or received an economic hardship deferment on 
that loan, before the date the borrower qualified for income-based 
repayment. The beginning date is the date the borrower made the payment 
or received the deferment, but no earlier than July 1, 2009;
    (ii) For a borrower who has one or more other eligible FFEL loans, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan. The beginning date is the date the borrower 
made that payment or received the deferment on that loan, but no 
earlier than July 1, 2009;
    (iii) For a borrower who did not make a payment or receive an 
economic hardship deferment on the loan under paragraph (f)(3)(i) or 
(ii) of this section, the date the borrower made a payment under the 
income-based repayment plan on the loan; or
    (iv) If the borrower consolidates his or her eligible loans, the 
date the borrower made a payment on the FFEL Consolidation Loan that 
met the conditions in (f)(1) after qualifying for the income-based 
repayment plan.
    (4) If a borrower satisfies the loan forgiveness requirements, the 
Secretary repays the outstanding balance and accrued interest on the 
FFEL Consolidation Loan described in paragraph (f)(3)(i), (iii), or 
(iv) of this section or other eligible FFEL loans described in 
paragraph (f)(3)(ii) or (iv) of this section.
    (5) A borrower repaying a defaulted loan is not considered to be 
repaying under a qualifying repayment plan for the purpose of loan 
forgiveness, and any payments made on a defaulted loan are not counted 
toward the 25-year forgiveness period.
    (g) Loan forgiveness processing and payment. (1) No later than 60 
days after the loan holder determines that a borrower qualifies for 
loan forgiveness under paragraph (f) of this section, the loan holder 
must request payment from the guaranty agency.
    (2) If the loan holder requests payment from the guaranty agency 
later than the period specified in paragraph (g)(1) of this section, 
interest that accrues on the discharged amount after the expiration of 
the 60-day filing period is ineligible for reimbursement by the 
Secretary, and the holder must repay all interest and special allowance 
received on the discharged amount for periods after the expiration of 
the 60-day filing period. The holder cannot collect from the borrower 
any interest that is not paid by the Secretary under this paragraph.
    (3)(i) Within 45 days of receiving the holder's request for 
payment, the guaranty agency must determine if the borrower meets the 
eligibility requirements for loan forgiveness under this section and 
must notify the holder of its determination.
    (ii) If the guaranty agency approves the loan forgiveness, it must, 
within the same 45-day period required under paragraph (g)(3)(i) of 
this section, pay the holder the amount of the forgiveness.
    (4) After being notified by the guaranty agency of its 
determination of the eligibility of the borrower for loan forgiveness, 
the holder must, within 30 days, inform the borrower of the 
determination and, if appropriate, that the borrower's repayment 
obligation on the loans for which income-based forgiveness was 
requested is satisfied. The lender must also provide the borrower with 
information on the required handling of the forgiveness amount.
    (5)(i) The holder must apply the proceeds of the income-based 
repayment loan forgiveness amount to satisfy the outstanding balance on 
those

[[Page 63252]]

loans for which income-based forgiveness was requested; or
    (ii) If the forgiveness amount exceeds the outstanding balance on 
the eligible loans subject to forgiveness, the loan holder must refund 
the excess amount to the guaranty agency.
    (6) If the guaranty agency does not pay the forgiveness claim, the 
lender will continue the borrower in repayment on the loan. The lender 
is deemed to have exercised forbearance of both principal and interest 
from the date the borrower's repayment obligation was suspended until a 
new payment due date is established. Unless the denial of the 
forgiveness claim was due to an error by the lender, the lender may 
capitalize any interest accrued and not paid during this period, in 
accordance with Sec.  682.202(b).
    (7) The loan holder must promptly return to the sender any payment 
received on a loan after the guaranty agency pays the loan holder the 
amount of loan forgiveness.

(Authority: 20 U.S.C. 1098e)


0
11. Section 682.300 is amended by:
0
A. In paragraph (b)(1)(ii), removing the word ``and'' at the end of the 
sentence.
0
B. In paragraph (b)(1)(iii), removing the punctuation ``.'' and adding, 
in its place ``; and'' at the end of the sentence.
0
C. Adding a new paragraph (b)(1)(iv).
0
D. In paragraph (b)(2)(viii), removing the word `` or'' at the end of 
the sentence.
0
E. In paragraph (b)(2)(ix), removing the punctuation ``.'' and adding 
in its place ``; or'' at the end of the sentence.
0
F. Adding a new paragraph (b)(2)(x).
    The additions read as follows:


Sec.  682.300  Payment of interest benefits on Stafford and 
Consolidation loans.

* * * * *
    (b) * * *
    (1) * * *
    (iv) During a period that does not exceed three consecutive years 
from the established repayment period start date on each loan under the 
income-based repayment plan and that excludes any period during which 
the borrower receives an economic hardship deferment, if the borrower's 
monthly payment amount under the plan is not sufficient to pay the 
accrued interest on the borrower's loan or on the qualifying portion of 
the borrower's Consolidation Loan.
* * * * *
    (2) * * *
    (x) The date the borrower's payment under the income-based 
repayment plan is sufficient to pay the accrued interest on the 
borrower's loan or the qualifying portion of the borrower's 
Consolidation Loan.
* * * * *
0
12. Section 682.302 is amended by:
0
A. Revising paragraph (a).
0
B. In paragraph (e)(4), removing ``(e)(5)'' and adding, in its place, 
``(e)(5) or (f)''.
0
C. Revising the introductory text of paragraph (f).
0
D. Revising paragraph (f)(3).
    The revisions read as follows:


Sec.  682.302  Payment of special allowance on FFEL loans.

    (a) General. The Secretary pays a special allowance to a lender on 
an eligible FFEL loan. The special allowance is a percentage of the 
average unpaid principal balance of a loan, including capitalized 
interest computed in accordance with paragraphs (c) and (f) of this 
section. Special allowance is also paid on the unpaid accrued interest 
of a loan covered by Sec.  682.215(b)(7) computed in the same manner as 
in paragraphs (c) and (f), as applicable, except for this purpose the 
applicable interest rate shall be deemed to be zero.
* * * * *
    (f) Special allowance rates for loans made on or after October 1, 
2007. With respect to any loan for which the first disbursement of 
principal is made on or after October 1, 2007, other than a loan 
described in paragraph (e)(5) of this section, the special allowance 
rate for an eligible loan made during a 3-month period is calculated 
according to the formulas described in paragraphs (f)(1) and (f)(2) of 
this section.
* * * * *
    (3) Eligible Not-for-Profit Holder. (i) For purposes of this 
section, the term ``eligible not-for-profit holder'' means an eligible 
lender under section 435(d) of the Act (except an eligible institution) 
that requests special allowance payments from the Secretary and that 
is--
    (A) A State, or a political subdivision, authority, agency, or 
other instrumentality thereof, including such entities that are 
eligible to issue bonds described in 26 CFR 1.103-1, or section 144(b) 
of the Internal Revenue Code of 1986;
    (B) An entity described in section 150(d)(2) of the Internal 
Revenue Code of 1986 that has not made the election described in 
section 150(d)(3) of that Code;
    (C) An entity described in section 501(c)(3) of the Internal 
Revenue Code of 1986; or
    (D) A trustee acting as an eligible lender on behalf of an entity 
that is not an eligible institution and that is a State or non-profit 
entity or a special purpose entity for a State or non-profit entity.
    (ii) For purposes of paragraph (f)(3) of this section--
    (A) The term ``State or non-profit entity'' means an entity 
described in paragraph (f)(3)(i)(A), (f)(3)(i)(B), or (f)(3)(i)(C) of 
this section, regardless of whether such entity is an eligible lender 
under section 435(d) of that Act.
    (B) The term ``special purpose entity'' means an entity established 
for the limited purpose of financing the acquisition of loans from or 
at the direction of a State or non-profit entity, or servicing and 
collecting such loans, and that is--
    (1) An entity established by such State or non-profit entity, or
    (2) An entity established by an entity described in paragraph 
(f)(3)(ii)(B)(1) of this section.
    (C) A special purpose entity is a ``related special purpose 
entity'' with respect to a State or non-profit entity if it holds any 
interest in loans acquired from or at the direction of that State or 
non-profit entity or from a special purpose entity established by that 
State or non-profit entity.
    (iii) An entity that otherwise qualifies under paragraph (f)(3)(i) 
of this section shall not be considered an eligible not-for-profit 
holder unless such entity--
    (A) Was a State or non-profit entity and an eligible lender under 
section 435(d) of the Act, other than a school lender, and on or before 
September 27, 2007 had made or acquired a FFEL loan, unless the State 
waives this requirement under paragraph (f)(3)(iv) of this section; or
    (B) Is acting as an eligible lender trustee on behalf of a State or 
non-profit entity that was the sole beneficial owner of a loan eligible 
for a special allowance payment on September 27, 2007.
    (iv) Subject to the provisions of section 435(d)(1)(D) of the Act, 
a State may waive the requirement of paragraph (f)(3)(iii)(A) of this 
section to identify a new eligible not-for-profit holder pursuant to a 
written application filed in accordance with paragraph (f)(3)(x) of 
this section, for the purposes of carrying out a public purpose of the 
State, except that a State may not designate a trustee for this 
purpose.
    (v) A State or non-profit entity, and a trustee to the extent 
acting on behalf of such an entity or its related special purpose 
entity, shall not be an eligible not-for-profit holder if the State or 
non-profit entity or its related special purpose entity is owned or 
controlled, in whole or in part, by a for-profit entity. For purposes 
of this paragraph, a for-profit entity has ownership and

[[Page 63253]]

control of a State or non-profit entity, or its related special purpose 
entity, if--
    (A) The for-profit entity is a member or shareholder of a State or 
non-profit entity or related special purpose entity that is a 
membership or stock corporation, and the for-profit entity has 
sufficient power to control the State or non-profit entity or its 
special purpose entity;
    (B) The for-profit-entity employs or appoints individuals that 
together constitute a majority of the State, non-profit, or special 
purpose entity's board of trustees or directors, or a majority of such 
board's audit committee, executive committee, or compensation 
committee; or
    (C) For a State, non-profit, or special purpose entity that has no 
board of trustees or directors and associated committees of such, the 
for-profit entity is authorized by law, agreement, or otherwise to 
approve decisions by the entity regarding its audits, investments, 
hiring, retention, or compensation of officials, unless the Secretary 
determines that the particular authority to approve such decisions is 
not likely to affect the integrity of those decisions.
    (vi) For purposes of paragraph (f)(3) of this section--
    (A) A for-profit entity has sufficient power to control a State or 
non-profit entity or its related special purpose entity, if it 
possesses directly, or represents, either alone or together with other 
persons, under a voting trust, power of attorney, proxy, or similar 
agreement, one or more persons who hold, individually or in combination 
with the other person represented or the persons representing them, a 
sufficient voting percentage of the membership interests or voting 
securities to direct or cause the direction of the management and 
policies of the State or non-profit entity or its related special 
purpose entity.
    (B) An individual is deemed to be employed or appointed by a for-
profit entity if the for-profit entity employs a family member, as 
defined in Sec.  600.21(f), of that individual, unless the Secretary 
determines that the particular nature of the family member's employment 
is not likely to affect the integrity of decisions made by the board or 
committee member.
    (C) ``Beneficial owner'' (including ``beneficial ownership'' and 
``owner of a beneficial interest'') means the entity that has those 
rights with respect to the loan or income from the loan that are the 
normal incidents of ownership, including the right to receive, possess, 
use, and sell or otherwise exercise control over the loan and the 
income from the loan, subject to any rights granted and limitations 
imposed in connection with or related to the granting of a security 
interest described in paragraph (f)(3)(ix) of this section, and subject 
to any limitations on such rights under the Act as a result of such 
entity not qualifying as an eligible lender or holder under the Act.
    (D) ``Sole owner'' means the entity that has all the rights 
described in paragraph (f)(3)(vi)(C) of this section, which may be 
subject to the rights and limitations described in paragraph 
(f)(3)(vi)(C), to the exclusion of any other entity, with respect both 
to a loan and the income from a loan.
    (vii)(A) No State or non-profit entity, and no trustee to the 
extent acting on behalf of such a State or non-profit entity or its 
related special purpose entity, shall be an eligible not-for-profit 
holder with respect to any loan or income from any loan on which 
payment is claimed at the rate established under paragraph (f)(2) of 
this section, unless such State or non-profit entity or its related 
special purpose entity is the sole owner of the beneficial interest in 
such loan and the income from such loan.
    (B) A State or non-profit entity that had sole ownership of the 
beneficial interest in a loan and the income from such loan is 
considered to retain that sole ownership for purposes of paragraph 
(f)(3)(vii)(A) of this section if such entity transferred beneficial 
interest in the loan to its related special purpose entity and no party 
other than that State or non-profit entity or its related special 
purpose entity owns any beneficial interest or residual ownership 
interest in the loan or income from the loan.
    (viii)(A) A trustee described in paragraph (f)(3)(i)(D) of this 
section shall not receive compensation as consideration for acting as 
an eligible lender on behalf of a State or non-profit entity or its 
related special purpose entity in excess of reasonable and customary 
fees paid for providing the particular service or services that the 
trustee undertakes to provide to such entity.
    (B) Fees are reasonable and customary, for purposes of this 
paragraph (f)(3)(viii), if they do not exceed the amounts received by 
the trustee for similar services with regard to similar portfolios of 
loans of that State or non-profit entity or its related special purpose 
entity that are not eligible to receive special allowance at the rate 
established under paragraph (f)(2) of this section, or if they do not 
exceed an amount as determined by such other method requested by the 
State or non-profit entity that the Secretary considers reliable.
    (C) Loans owned by the State or non-profit entity or a related 
special purpose entity for which the trustee receives fees in excess of 
the amount permitted by paragraph (f)(3)(viii) of this section cease to 
qualify for a special allowance payment at the rate prescribed under 
paragraph (f)(2) of this section.
    (ix) For purposes of paragraph (f)(3) of this section, if a State 
or non-profit entity, its related special purpose entity, or a trustee 
acting on behalf of any of these entities, grants a security interest 
in, or otherwise pledges as collateral, a loan, or the income from a 
loan, to secure a debt obligation for which such State or non-profit 
entity, or its related special purpose entity, is the issuer of that 
debt obligation, none of these entities shall, by such action--
    (A) Be deemed to be owned or controlled, in whole or in part, by a 
for-profit entity; or
    (B) Lose its status as the sole owner of a beneficial interest in a 
loan and the income from a loan.
    (x) Not-for-Profit Holder Eligibility Determination. A State or 
non-profit entity that seeks to qualify as an eligible not-for-profit 
holder, either in its own right or through a trust agreement with an 
eligible lender trustee, must provide to the Secretary--
    (A) A certification on the State or non-profit entity's letterhead 
signed by the State or non-profit entity's Chief Executive Officer 
(CEO) which--
    (1) States the basis upon which the entity qualifies as a State or 
non-profit entity;
    (2) Includes documentation establishing its status as a State or 
non-profit entity;
    (3) Includes the name and lender identification number(s) of the 
entities for which designation is being certified;
    (4) Includes the name of any related special purpose entities that 
hold any interest in any loan on which special allowance is claimed 
under paragraph (f)(2)of this section, describes the role of such 
entity with respect to the loans, and provides with respect to that 
entity the certifications and documentation described in paragraph 
(f)(3)(x)(A) and (B) of this section; and
    (5) For an entity establishing status under section 150(d) of the 
Internal Revenue Code of 1986, includes copies of the requests of the 
State or political subdivision or subdivisions thereof or requirements 
described in section 150(d)(2) of the Internal Revenue Code and the 
CEO's additional certification that the entity has not elected under 
section 150(d)(3) of the Internal Revenue Code to cease its status as a

[[Page 63254]]

qualified scholarship funding corporation.
    (B) A separately submitted certification or opinion by the State or 
non-profit entity's external legal counsel or the office of the 
attorney general of the State, with supporting documentation that shows 
that the State or non-profit entity--
    (1) Is constituted a State entity by operation of specific State 
law;
    (2) Has been designated by the State or one or more political 
subdivisions of the State to serve as a qualified scholarship funding 
corporation under section 150(d) of the Internal Revenue Code, has not 
made the election described under section 150(d)(3) of the Internal 
Revenue Code, and is incorporated under State law as a not-for-profit 
organization;
    (3) Is incorporated under State law as a not-for-profit 
organization or is an entity described in section 503(c)(3) of the 
Internal Revenue Code; or
    (4) Has in effect a relationship with an eligible lender under 
which the lender is acting as trustee on behalf of the State or non-
profit entity.
    (xi) Annual Certification by Eligible Not-for-Profit Holder. A 
State or non-profit entity that seeks to retain its eligibility as an 
eligible not-for-profit holder, either in its own right or through a 
trust agreement with an eligible lender trustee, must annually provide 
to the Secretary--
    (A) A certification on the State or non-profit entity's letterhead 
signed by the State or non-profit entity's Chief Executive Officer 
(CEO) which--
    (1) Includes the name and lender identification number(s) of the 
entities for which designation is being recertified;
    (2) States that the State or non-profit entity has not altered its 
status as a State or non-profit entity since its prior certification to 
the Secretary, or, if it has altered its status, describes any such 
alterations; and
    (3) States that the State or non-profit entity continues to satisfy 
the requirements of an eligible not-for-profit holder, either in its 
own right or through a trust agreement with an eligible lender trustee; 
and
    (B) A copy of its IRS Form 990, if applicable, and that of any 
related special purpose entity that holds an interest in loans on which 
it seeks to claim special allowance at the rate provided under 
paragraph (f)(2) of this section, at the same time these returns are 
filed with the Internal Revenue Service.
    (xii) Not-for-Profit Holder Change of Status. Within 10 business 
days of becoming aware of the occurrence of a change that may result in 
a State or non-profit entity that has been designated an eligible not-
for-profit holder, either directly or through an eligible lender 
trustee, losing that eligibility, the State or non-profit entity must--
    (A) Submit details of the change to the Secretary; and
    (B) Cease billing for special allowance at the rate established 
under paragraph (f)(2) of this section for the period from the date of 
the change that may result in it no longer being eligible for the rate 
established under paragraph (f)(2) of this section to the date of the 
Secretary's determination that such entity has not lost its eligibility 
as a result of such change; provided, however, that in the quarter 
following the Secretary's determination that such eligible not-for-
profit holder has not lost its eligibility, the eligible not-for-profit 
holder may submit a billing for special allowance during the period 
from the date of the change to the date of the Secretary's 
determination equal to the difference between special allowance at the 
rate established under paragraph (f)(2) of this section and the amount 
it actually billed at the rate established under paragraph (f)(1) of 
this section.
    (xiii) In the case of a loan for which the special allowance 
payment is calculated under paragraph (f)(2) of this section and that 
is sold by the eligible not-for-profit holder holding the loan to an 
entity that is not an eligible not-for-profit holder, the special 
allowance payment for such loan shall, beginning on the date of the 
sale, no longer be calculated under paragraph (f)(2) and shall be 
calculated under paragraph (f)(1) of this section instead.
* * * * *

0
13. Section 682.304 is amended by:
0
A. Redesignating paragraph (d)(2) as paragraph (d)(3).
0
B. Adding a new paragraph (d)(2).
0
C. In newly designated paragraph (d)(3), removing the words ``paragraph 
(d)(1)'' and adding, in their place, the words ``paragraphs (d)(1) and 
(2)''.
    The addition reads as follows:


Sec.  682.304  Method of computing interest benefits and special 
allowance.

* * * * *
    (d) * * *
    (2) To compute the average daily balance of unpaid accrued interest 
for purposes of special allowance on loans covered by Sec.  
682.215(b)(7), the lender adds the unpaid accrued interest on such 
loans for each eligible day of the quarter, divides this sum by the 
number of days in the quarter, and rounds the result to the nearest 
whole dollar. The resulting figure is the average daily balance for the 
quarter for qualifying loans at the applicable interest rate.
* * * * *

0
14. Section 682.405 is amended by revising paragraph (b)(4) to read as 
follows:


Sec.  682.405  Loan rehabilitation agreement.

* * * * *
    (b) * * *
    (4) An eligible lender purchasing a rehabilitated loan must 
establish a repayment schedule that meets the same requirements that 
are applicable to other FFEL Program loans of the same loan type as the 
rehabilitated loan and must permit the borrower to choose any 
statutorily available repayment plan for that loan type. The lender 
must treat the first payment made under the nine payments as the first 
payment under the applicable maximum repayment term, as defined under 
Sec.  682.209(a) or (h). For Consolidation loans, the maximum repayment 
term is based on the balance outstanding at the time of loan 
rehabilitation.
* * * * *


Sec.  682.411  [Amended]

0
15. Section 682.411 is amended, in paragraph (d)(1), by adding the 
words ``, income-based repayment'' immediately after the words 
``income-sensitive repayment''.


Sec.  682.604  [Amended]

0
16. Section 682.604 is amended by:
0
A. In paragraph (g)(2)(ii), removing the words ``and income-sensitive'' 
and adding, in their place, the words ``income sensitive, and income-
based''.
0
B. In paragraph (g)(2)(v), adding the words ``forgiveness or'' 
immediately after the words ``full or partial'', and adding the words 
``, including forgiveness or discharge benefits available to a FFEL 
borrower who consolidates his or her loan into the Direct Loan 
program'' immediately after the words ``of a loan''.

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

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

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


0
18. Section 685.204 is amended by:
0
A. Adding a heading to paragraph (e).
0
B. In paragraph (e)(2), removing the word ``The'' and adding, in its 
place, the words ``For a borrower whose active duty service includes 
October 1, 2007, or begins on or after that date, the'' before the word 
``deferment'' and by adding the words ``each period of''

[[Page 63255]]

before the words ``the service described''.
0
C. In paragraph (e)(6) introductory text, removing the word ``section'' 
and adding in its place the word ``paragraph''.
0
D. Adding a new paragraph (e)(7).
0
E. In paragraph (f), adding the heading ``Post-active duty student 
deferment'' before the paragraph designation ``(1)''.
0
F. In paragraph (f)(1)(ii), adding the words ``on at least a half-time 
basis'' after the word ``enrolled''.
0
G. Revising paragraph (f)(2).
0
H. In paragraph (f)(3), adding the words ``on at least a half-time 
basis'' after the word ``status'' each time it appears and the words 
``grace period or the'' before the words ``13-month''.
0
I. Adding new paragraph (f)(4).
0
J. In paragraph (h)(1), removing the word ``granted''.
    The additions and revision read as follows:


Sec.  685.204  Deferment.

* * * * *
    (e) Military service deferment.
    * * *
    (7) Without supporting documentation, the military service 
deferment will be granted to an otherwise eligible borrower for a 
period not to exceed 12 months from the date of the qualifying eligible 
service based on a request from the borrower or the borrower's 
representative.
    (f) Post-active duty student deferment.
* * * * *
    (2) As used in paragraph (f)(1) of this section, ``Active Duty'' 
means active duty as defined in section 101(d)(1) of title 10, United 
States Code, except that--
    (i) Active duty includes active State duty for members of the 
National Guard under which a Governor activates National Guard 
personnel based on State statute or policy and the activities of the 
National Guard are paid for with State funds;
    (ii) Active duty includes full-time National Guard duty under which 
a Governor is authorized, with the approval of the President or the 
U.S. Secretary of Defense, to order a member to State active duty and 
the activities of the National Guard are paid for with Federal funds;
    (iii) Active duty does not include active duty for training or 
attendance at a service school; and
    (iv) Active duty does not include employment in a full-time, 
permanent position in the National Guard unless the borrower employed 
in such a position is reassigned to active duty under paragraph 
(f)(2)(i) of this section or full-time National Guard duty under 
paragraph (f)(2)(ii) of this section.
* * * * *
    (4) If a borrower qualifies for both a military service deferment 
and a post-active duty student deferment, the 180-day post-
demobilization deferment period and the 13-month post-active duty 
student deferment period apply concurrently.
* * * * *

0
19. Section 685.205 is amended by adding a new paragraph (a)(7) to read 
as follows:


Sec.  685.205  Forbearance.

* * * * *
    (a) * * *
    (7) The borrower is a member of the National Guard who qualifies 
for a post-active duty student deferment, but does not qualify for a 
military service or other deferment, and is engaged in active State 
duty for a period of more than 30 consecutive days, beginning--
    (i) On the day after the grace period expires for a Direct 
Subsidized Loan or Direct Unsubsidized Loan that has not entered 
repayment; or
    (ii) On the day after the borrower ceases enrollment on at least a 
half-time basis, for a Direct Loan in repayment.
* * * * *

0
20. Section 685.208 is amended by:
0
A. Revising paragraph (a).
0
B. Adding a new paragraph (m).
    The revisions and addition read as follows:


Sec.  685.208  Repayment plans.

    (a) General. (1) Borrowers who entered repayment before July 1, 
2006. (i) A borrower may repay a Direct Subsidized Loan, a Direct 
Unsubsidized Loan, a Direct Subsidized Consolidation Loan, or a Direct 
Unsubsidized Consolidation Loan under the standard repayment plan, the 
extended repayment plan, the graduated repayment plan, the income 
contingent repayment plan, or the income-based repayment plan, in 
accordance with paragraphs (b), (d), (f), (k), and (m) of this section, 
respectively.
    (ii) A borrower may repay a Direct PLUS Loan or a Direct PLUS 
Consolidation Loan under the standard repayment plan, the extended 
repayment plan, or the graduated repayment plan, in accordance with 
paragraphs (b), (d), and (f) of this section, respectively.
    (2) Borrowers entering repayment on or after July 1, 2006. (i) A 
borrower may repay a Direct Subsidized Loan or a Direct Unsubsidized 
Loan under the standard repayment plan, the extended repayment plan, 
the graduated repayment plan, the income contingent repayment plan, or 
the income-based repayment plan, in accordance with paragraphs (b), 
(e), (g), (k), and (m) of this section, respectively.
    (ii)(A) A Direct PLUS Loan that was made to a graduate or 
professional student borrower may be repaid under the standard 
repayment plan, the extended repayment plan, the graduated repayment 
plan, the income-contingent repayment plan, or the income-based 
repayment plan in accordance with paragraphs (b), (e), (g), (k), and 
(m) of this section, respectively.
    (B) A Direct PLUS Loan that was made to a parent borrower may be 
repaid under the standard repayment plan, the extended repayment plan, 
or the graduated repayment plan, in accordance with paragraphs (b), 
(e), and (g) of this section, respectively.
    (iii) A borrower may repay a Direct Consolidation Loan under the 
standard repayment plan, the extended repayment plan, the graduated 
repayment plan, the income contingent repayment plan, or, unless the 
Direct Consolidation Loan repaid a parent Direct PLUS Loan or a parent 
Federal PLUS Loan, the income-based repayment plan, in accordance with 
paragraphs (c), (e), (h), (k), and (m) of this section, respectively. A 
Direct Consolidation Loan that repaid a parent Direct PLUS Loan or a 
parent Federal PLUS Loan may not be repaid under the income-based 
repayment plan.
    (iv) No scheduled payment may be less than the amount of interest 
accrued on the loan between monthly payments, except under the income 
contingent repayment plan, the income-based repayment plan, or an 
alternative repayment plan.
    (3) The Secretary may provide an alternative repayment plan in 
accordance with paragraph (l) of this section.
    (4) All Direct Loans obtained by one borrower must be repaid 
together under the same repayment plan, except that--
    (i) A borrower of a Direct PLUS Loan or a Direct Consolidation Loan 
that is not eligible for repayment under the income-contingent 
repayment plan or the income-based repayment plan may repay the Direct 
PLUS Loan or Direct Consolidation Loan separately from other Direct 
Loans obtained by the borrower; and
    (ii) A borrower of a Direct PLUS Consolidation Loan that entered 
repayment before July 1, 2006, may repay the Direct PLUS Consolidation 
Loan separately from other Direct Loans obtained by that borrower.
    (5) Except as provided in Sec.  685.209 and Sec.  685.221 for the 
income contingent

[[Page 63256]]

or income-based repayment plan, the repayment period for any of the 
repayment plans described in this section does not include periods of 
authorized deferment or forbearance.
* * * * *
    (m) Income-based repayment plan. (1) Under this repayment plan, the 
required monthly payment for a borrower who has a partial financial 
hardship is limited to no more than 15 percent of the amount by which 
the borrower's AGI exceeds 150 percent of the poverty guideline 
applicable to the borrower's family size, divided by 12. The Secretary 
determines annually whether the borrower continues to qualify for this 
reduced monthly payment based on the amount of the borrower's eligible 
loans, AGI, and poverty guideline.
    (2) The specific provisions governing the income-based repayment 
plan are in Sec.  685.221.

0
21. Section 685.209 is amended by revising paragraph (c)(4) to read as 
follows:


Sec.  685.209  Income contingent repayment plan.

* * * * *
    (c) * * *
    (4) Repayment period. (i) The maximum repayment period under the 
income contingent repayment plan is 25 years.
    (ii) The repayment period includes--
    (A) Periods in which the borrower makes payments under the income-
contingent repayment plan on loans that are not in default;
    (B) Periods in which the borrower makes reduced monthly payments 
under the income-based repayment plan or a recalculated reduced monthly 
payment after the borrower no longer has a partial financial hardship 
or stops making income-based payments, as provided in Sec.  
685.221(d)(1)(i);
    (C) Periods in which the borrower made monthly payments under the 
standard repayment plan after leaving the income-based repayment plan 
as provided in Sec.  685.221(d)(2);
    (D) Periods in which the borrower makes payments under the standard 
repayment plan described in Sec.  685.208(b);
    (E) For borrowers who entered repayment before October 1, 2007, and 
if the repayment period is not more than 12 years, periods in which the 
borrower makes monthly payments under the extended repayment plans 
described in Sec.  685.208(d) and (e), or the standard repayment plan 
described in Sec.  685.208(c);
    (F) Periods after October 1, 2007, in which the borrower makes 
monthly payments under any other repayment plan that are not less than 
the amount required under the standard repayment plan described in 
Sec.  685.208(b); or
    (G) Periods of economic hardship deferment after October 1, 2007.
* * * * *

0
22. Section 685.210 is amended by revising paragraph (b)(2) to read as 
follows:


Sec.  685.210  Choice of repayment plan.

* * * * *
    (b) * * *
    (2)(i) A borrower may not change to a repayment plan that has a 
maximum repayment period of less than the number of years the loan has 
already been in repayment, except that a borrower may change to either 
the income contingent or income-based repayment plan at any time.
    (ii) If a borrower changes plans, the repayment period is the 
period provided under the borrower's new repayment plan, calculated 
from the date the loan initially entered repayment. However, if a 
borrower changes to the income contingent repayment plan or the income-
based repayment plan, the repayment period is calculated as described 
in Sec.  685.209(c)(4) or Sec.  685.221(b)(6), respectively.
* * * * *
0
23. Section 685.211 is amended by:
0
A. Revising paragraph (a)(1).
0
B. Revising paragraph (d)(3)(ii).
    The revisions read as follows:


Sec.  685.211  Miscellaneous repayment provisions.

    (a) Payment application and prepayment. (1) Except as provided for 
the income-based repayment plan under Sec.  685.221(c)(1), the 
Secretary applies any payment first to any accrued charges and 
collection costs, then to any outstanding interest, and then to 
outstanding principal.
* * * * *
    (d) * * *
    (3) * * *
    (ii) If a borrower defaults on a Direct Subsidized Loan, a Direct 
Unsubsidized Loan, a Direct Consolidation Loan, or a student Direct 
PLUS Loan, the Secretary may designate the income contingent repayment 
plan or the income-based repayment plan for the borrower.
* * * * *

0
24. Section 685.212 is amended by:
0
A. Redesignating paragraph (i) as paragraph (j).
0
B. Adding new paragraph (i) to read as follows:


Sec.  685.212  Discharge of a loan obligation.

* * * * *
    (i) Public Service Loan Forgiveness Program. If a borrower meets 
the requirements in Sec.  685.219, the Secretary cancels the remaining 
principal and accrued interest of the borrower's eligible Direct 
Subsidized Loan, Direct Unsubsidized Loan, Direct PLUS Loan, and Direct 
Consolidation Loan.
* * * * *

0
25. A new Sec.  685.219 is added to read as follows:


Sec.  685.219  Public Service Loan Forgiveness Program.

    (a) General. The Public Service Loan Forgiveness Program is 
intended to encourage individuals to enter and continue in full-time 
public service employment by forgiving the remaining balance of their 
Direct loans after they satisfy the public service and loan payment 
requirements of this section.
    (b) Definitions. The following definitions apply to this section:
    AmeriCorps position means a position approved by the Corporation 
for National and Community Service under section 123 of the National 
and Community Service Act of 1990 (42 U.S.C. 12573).
    Eligible Direct loan means a Direct Subsidized Loan, Direct 
Unsubsidized Loan, Direct PLUS loan, or a Direct Consolidation loan.
    Employee or employed means an individual who is hired and paid by a 
public service organization.
    Full-time (1) means working in qualifying employment in one or more 
jobs for the greater of--
    (i)(A) An annual average of at least 30 hours per week, or
    (B) For a contractual or employment period of at least 8 months, an 
average of 30 hours per week; or
    (ii) Unless the qualifying employment is with two or more 
employers, the number of hours the employer considers full-time.
    (2) Vacation or leave time provided by the employer or leave taken 
for a condition that is a qualifying reason for leave under the Family 
and Medical Leave Act of 1993, 29 U.S.C. 2612(a)(1) and (3) is not 
considered in determining the average hours worked on an annual or 
contract basis.
    Government employee means an individual who is employed by a local, 
State, Federal, or Tribal government, but does not include a member of 
the U.S. Congress.
    Law enforcement means service performed by an employee of a public 
service organization that is publicly funded and whose principal 
activities pertain to crime prevention, control or reduction of crime, 
or the enforcement of criminal law.
    Military service, for uniformed members of the U.S. Armed Forces or

[[Page 63257]]

the National Guard, means ``active duty'' service or ``full-time 
National Guard duty'' as defined in section 101(d)(1) and (d)(5) of 
title 10 in the United States Code, but does not include active duty 
for training or attendance at a service school. For civilians, 
``Military service'' means service on behalf of the U.S. Armed Forces 
or the National Guard performed by an employee of a public service 
organization.
    Peace Corps position means a full-time assignment under the Peace 
Corps Act as provided for under 22 U.S.C. 2504.
    Public interest law refers to legal services provided by a public 
service organization that are funded in whole or in part by a local, 
State, Federal, or Tribal government.
    Public service organization means:
    (1) A Federal, State, local, or Tribal government organization, 
agency, or entity;
    (2) A public child or family service agency;
    (3) A non-profit organization under section 501(c)(3) of the 
Internal Revenue Code that is exempt from taxation under section 501(a) 
of the Internal Revenue Code;
    (4) A Tribal college or university; or
    (5) A private organization that--
    (i) Provides the following public services: Emergency management, 
military service, public safety, law enforcement, public interest law 
services, early childhood education (including licensed or regulated 
health care, Head Start, and State funded pre-kindergarten), public 
service for individuals with disabilities and the elderly, public 
health (including nurses, nurse practitioners, nurses in a clinical 
setting, and full-time professionals engaged in heath care practitioner 
occupations and health care support occupations, as such terms are 
defined by the Bureau of Labor Statistics), public education, public 
library services, school library or other school-based services; and
    (ii) Is not a business organized for profit, a labor union, a 
partisan political organization, or an organization engaged in 
religious activities, unless the qualifying activities are unrelated to 
religious instruction, worship services, or any form of proselytizing.
    (c) Borrower eligibility. (1) A borrower may obtain loan 
forgiveness under this program if he or she--
    (i) Is not in default on the loan for which forgiveness is 
requested;
    (ii) Is employed full-time by a public service organization or 
serving in a full-time AmeriCorps or Peace Corps position--
    (A) When the borrower makes the 120 monthly payments described 
under paragraph (c)(1)(iii) of this section;
    (B) At the time of application for loan forgiveness; and
    (C) At the time the remaining principal and accrued interest are 
forgiven;
    (iii) Makes 120 separate monthly payments after October 1, 2007, on 
eligible Direct loans for which forgiveness is sought. Except as 
provided in paragraph (c)(2) of this section for a borrower in an 
AmeriCorps or Peace Corps position, the borrower must make the monthly 
payments within 15 days of the scheduled due date for the full 
scheduled installment amount; and
    (iv) Makes the required 120 monthly payments under one or more of 
the following repayment plans--
    (A) Except for a parent PLUS borrower, an income-based repayment 
plan, as determined in accordance with Sec.  685.221;
    (B) Except for a parent PLUS borrower, an income-contingent 
repayment plan, as determined in accordance with Sec.  685.209;
    (C) A standard repayment plan, as determined in accordance with 
Sec.  685.208(b); or
    (D) Any other repayment plan if the monthly payment amount paid is 
not less than what would have been paid under the Direct Loan standard 
repayment plan described in Sec.  685.208(b).
    (2) If a borrower makes a lump sum payment on an eligible loan for 
which the borrower is seeking forgiveness by using all or part of a 
Segal Education Award received after a year of AmeriCorps service, or 
by using all or part of a Peace Corps transition payment if the lump 
sum payment is made no later than six months after leaving the Peace 
Corps, the Secretary will consider the borrower to have made qualifying 
payments equal to the lesser of--
    (i) The number of payments resulting after dividing the amount of 
the lump sum payment by the monthly payment amount the borrower would 
have made under paragraph (c)(1)(iv) of this section; or
    (ii) Twelve payments.
    (d) Forgiveness Amount. The Secretary forgives the principal and 
accrued interest that remains on all eligible loans for which loan 
forgiveness is requested by the borrower. The Secretary forgives this 
amount after the borrower makes the 120 monthly qualifying payments 
under paragraph (c) of this section.
    (e) Application. (1) After making the 120 monthly qualifying 
payments on the eligible loans for which loan forgiveness is requested, 
a borrower may request loan forgiveness on a form provided by the 
Secretary.
    (2) If the Secretary determines that the borrower meets the 
eligibility requirements for loan forgiveness under this section, the 
Secretary--
    (i) Notifies the borrower of this determination; and
    (ii) Forgives the outstanding balance of the eligible loans.
    (3) If the Secretary determines that the borrower does not meet the 
eligibility requirements for loan forgiveness under this section, the 
Secretary resumes collection of the loan and grants forbearance of 
payment on both principal and interest for the period in which 
collection activity was suspended. The Secretary notifies the borrower 
that the application has been denied, provides the basis for the 
denial, and informs the borrower that the Secretary will resume 
collection of the loan. The Secretary may capitalize any interest 
accrued and not paid during this period.

(Authority: 20 U.S.C. 1087e(m))


0
26. Section 685.220 is amended by:
0
A. In paragraph (d)(1)(i)(B)(2), removing the word ``or''.

0
B. Redesignating paragraph (d)(1)(i)(B)(3) as (d)(1)(i)(B)(4).
0
C. In newly redesignated paragraph (d)(1)(i)(B)(4), adding the words 
``is in default or'' after the word ``that'', and changing the period 
at the end of the paragraph to ``; or''.
0
D. Adding new paragraph (d)(1)(i)(B)(3).
0
E. Adding new paragraph (d)(1)(i)(B)(5).
0
F. In paragraph (d)(1)(ii)(A), removing the word ``a'' and adding, in 
its place, the words ``the grace'' before the word ``period''.
0
G. In paragraph (d)(1)(ii)(D), adding the words ``, or the income-based 
repayment plan described in Sec.  685.208(m),'' after the reference to 
``Sec.  685.220(k)'' and the words ``or Sec.  685.221(e)'' after the 
reference to ``Sec.  685.209(d)(5)''.
    The additions read as follows:


Sec.  685.220  Consolidation.

* * * * *
    (d) * * *
    (1) * * *
    (i) * * *
    (B) * * *
    (3) The borrower wishes to use the Public Service Loan Forgiveness 
Program;
    * * *
    (5) The borrower has a FFEL Consolidation Loan and the borrower

[[Page 63258]]

wants to consolidate that loan into the Direct Loan Program for 
purposes of using the Public Service Loan Forgiveness Program.
* * * * *

0
27. A new Sec.  685.221 is added to read as follows:


Sec.  685.221  Income-based repayment plan.

    (a) Definitions. As used in this section--
    (1) Adjusted gross income (AGI) means the borrower's adjusted gross 
income as reported to the Internal Revenue Service. For a married 
borrower filing jointly, AGI includes both the borrower's and spouse's 
income. For a married borrower filing separately, AGI includes only the 
borrower's income.
    (2) Eligible loan means any outstanding loan made to a borrower 
under the FFEL or Direct Loan programs except for a defaulted loan, a 
FFEL or Direct PLUS Loan made to a parent borrower, or a FFEL or Direct 
Consolidation Loan that repaid a FFEL or Direct PLUS Loan made to a 
parent borrower.
    (3) Family size means the number that is determined by counting the 
borrower, the borrower's spouse, and the borrower's children, including 
unborn children who will be born during the year the borrower certifies 
family size, if the children receive more than half their support from 
the borrower. A borrower's family size includes other individuals if, 
at the time the borrower certifies family size, the other individuals--
    (i) Live with the borrower; and
    (ii) Receive more than half their support from the borrower and 
will continue to receive this support from the borrower for the year 
the borrower certifies family size. Support includes money, gifts, 
loans, housing, food, clothes, car, medical and dental care, and 
payment of college costs.
    (4) Partial financial hardship means a circumstance in which the 
annual amount due on all of a borrower's eligible loans, as calculated 
under a standard repayment plan based on a 10-year repayment period, 
exceeds 15 percent of the difference between the borrower's AGI and 150 
percent of the poverty guideline for the borrower's family size.
    (5) Poverty guideline refers to the income categorized by State and 
family size in the poverty guidelines published annually by the United 
States Department of Health and Human Services pursuant to 42 U.S.C. 
9902(2). If a borrower is not a resident of a State identified in the 
poverty guidelines, the poverty guideline to be used for the borrower 
is the poverty guideline (for the relevant family size) used for the 48 
contiguous States.
    (b) Terms of the repayment plan. (1) A borrower may select the 
income-based repayment plan only if the borrower has a partial 
financial hardship. Except as provided under paragraph (b)(2) of this 
section, the borrower's aggregate monthly loan payments are limited to 
no more than 15 percent of the amount by which the borrower's AGI 
exceeds 150 percent of the poverty guideline applicable to the 
borrower's family size, divided by 12.
    (2) The Secretary adjusts the calculated monthly payment if--
    (i) The total amount of the borrower's eligible loans are not 
Direct Loans, in which case the Secretary determines the borrower's 
adjusted monthly payment by multiplying the calculated payment by the 
percentage of the total amount of eligible loans that are Direct Loans;
    (ii) The calculated amount under paragraph (b)(1) or (b)(2)(i) of 
this section is less than $5.00, in which case the borrower's monthly 
payment is $0.00; or
    (iii) The calculated amount under paragraph (b)(1) or (b)(2)(i) of 
this section is equal to or greater than $5.00 but less than $10.00, in 
which case the borrower's monthly payment is $10.00.
    (3) If the borrower's monthly payment amount is not sufficient to 
pay the accrued interest on the borrower's Direct Subsidized loan or 
the subsidized portion of a Direct Consolidation Loan, the Secretary 
does not charge the borrower the remaining accrued interest for a 
period not to exceed three consecutive years from the established 
repayment period start date on that loan under the income-based 
repayment plan. On a Direct Consolidation Loan that repays loans on 
which the Secretary has not charged the borrower accrued interest, the 
three-year period includes the period for which the Secretary did not 
charge the borrower accrued interest on the underlying loans. This 
three-year period does not include any period during which the borrower 
receives an economic hardship deferment.
    (4) Except as provided in paragraph (b)(3) of this section, accrued 
interest is capitalized at the time a borrower chooses to leave the 
income-based repayment plan or no longer has a partial financial 
hardship.
    (5) If the borrower's monthly payment amount is not sufficient to 
pay any of the principal due, the payment of that principal is 
postponed until the borrower chooses to leave the income-based 
repayment plan or no longer has a partial financial hardship.
    (6) The repayment period for a borrower under the income-based 
repayment plan may be greater than 10 years.
    (c) Payment application and prepayment. The Secretary applies any 
payment made under an income-based repayment plan in the following 
order:
    (1) Accrued interest.
    (2) Collection costs.
    (3) Late charges.
    (4) Loan principal.
    (d) Changes in the payment amount. (1) If a borrower no longer has 
a partial financial hardship, the borrower may continue to make 
payments under the income-based repayment plan, but the Secretary 
recalculates the borrower's monthly payment. The Secretary also 
recalculates the monthly payment for a borrower who chooses to stop 
making income-based payments. In either case, as result of the 
recalculation--
    (i) The maximum monthly amount that the Secretary requires the 
borrower to repay is the amount the borrower would have paid under the 
standard repayment plan based on the amount of the borrower's eligible 
loans that were outstanding at the time the borrower began repayment on 
the loans under the income-based repayment plan; and
    (ii) The borrower's repayment period based on the recalculated 
payment amount may exceed 10 years.
    (2) If a borrower no longer wishes to pay under the income-based 
payment plan, the borrower must pay under the standard repayment plan 
and the Secretary recalculates the borrower's monthly payment based 
on--
    (i) The time remaining under the maximum ten-year repayment period 
for the amount of the borrower's loans that were outstanding at the 
time the borrower discontinued paying under the income-based repayment 
plan; or
    (ii) For a Direct Consolidation Loan, the applicable repayment 
period specified in Sec.  685.208(j) for the amount of that loan and 
the balance of other student loans that was outstanding at the time the 
borrower discontinued paying under the income-based repayment plan.
    (e) Eligibility documentation and verification. (1) The Secretary 
determines whether a borrower has a partial financial hardship to 
qualify for the income-based repayment plan for the year the borrower 
selects the plan and for each subsequent year that the borrower remains 
on the plan. To make this determination, the Secretary requires the 
borrower to--
    (i)(A) Provide written consent to the disclosure of AGI and other 
tax return information by the Internal Revenue Service to the 
Secretary. The borrower

[[Page 63259]]

provides consent by signing a consent form and returning it to the 
Secretary;
    (B) If a borrower's AGI is not available, or the Secretary believes 
that the borrower's reported AGI does not reasonably reflect the 
borrower's current income, the Secretary may use other documentation 
provided by the borrower to verify income; and
    (ii) Annually certify the borrower's family size. If the borrower 
fails to certify family size, the Secretary assumes a family size of 
one for that year.
    (2) The Secretary designates the repayment option described in 
paragraph (d)(1) of this section for any borrower who selects the 
income-based repayment plan but--
    (i) Fails to renew the required written consent for income 
verification; or
    (ii) Withdraws consent and does not select another repayment plan.
    (f) Loan forgiveness. (1) To qualify for loan forgiveness after 25 
years, a borrower must have participated in the income-based repayment 
plan and satisfied at least one of the following conditions during that 
period:
    (i) Made reduced monthly payments under a partial financial 
hardship as provided in paragraph (b)(1) or (2) of this section, 
including a monthly payment amount of $0.00, as provided under 
paragraph (b)(2)(ii) of this section.
    (ii) Made reduced monthly payments after the borrower no longer had 
a partial financial hardship or stopped making income-based payments as 
provided in paragraph (d) of this section.
    (iii) Made monthly payments under any repayment plan, that were not 
less than the amount required under the Direct Loan standard repayment 
plan described in Sec.  685.208(b).
    (iv) Made monthly payments under the Direct Loan standard repayment 
plan described in Sec.  685.208(b) based on the amount of the 
borrower's loans that were outstanding at the time the borrower first 
selected the income-based repayment plan.
    (v) Paid Direct Loans under the income-contingent repayment plan.
    (vi) Received an economic hardship deferment on eligible Direct 
Loans.
    (2) As provided under paragraph (f)(4) of this section, the 
Secretary cancels any outstanding balance of principal and accrued 
interest on Direct loans for which the borrower qualifies for 
forgiveness if the Secretary determines that--
    (i) The borrower made monthly payments under one or more of the 
repayment plans described in paragraph (f)(1) of this section, 
including a monthly payment amount of $0.00, as provided under 
paragraph (b)(2)(ii) of this section; and
    (ii)(A) The borrower made those monthly payments each year for a 
25-year period, or
    (B) Through a combination of monthly payments and economic hardship 
deferments, the borrower has made the equivalent of 25 years of 
payments.
    (3) For a borrower who qualifies for the income-based repayment 
plan, the beginning date for the 25-year period is--
    (i) If the borrower made payments under the income contingent 
repayment plan, the date the borrower made a payment on the loan under 
that plan at any time after July 1, 1994;
    (ii) If the borrower did not make payments under the income 
contingent repayment plan--
    (A) For a borrower who has a Direct Consolidation Loan, the date 
the borrower made a payment or received an economic hardship deferment 
on that loan, before the date the borrower qualified for income-based 
repayment. The beginning date is the date the borrower made the payment 
or received the deferment, but no earlier than July 1, 2009;
    (B) For a borrower who has one or more other eligible Direct Loans, 
the date the borrower made a payment or received an economic hardship 
deferment on that loan. The beginning date is the date the borrower 
made that payment or received the deferment on that loan, but no 
earlier than July 1, 2009;
    (C) For a borrower who did not make a payment or receive an 
economic hardship deferment on the loan under paragraph (f)(3)(ii)(A) 
or (B) of this section, the date the borrower made a payment under the 
income-based repayment plan on the loan;
    (D) If the borrower consolidates his or her eligible loans, the 
date the borrower made a payment on the Direct Consolidation Loan after 
qualifying for the income-based repayment plan; or
    (E) If the borrower did not make a payment or receive an economic 
hardship deferment on the loan under paragraph (f)(3)(i) or (ii) of 
this section, determining the date the borrower made a payment under 
the income-based repayment plan on the loan.
    (4) If the Secretary determines that a borrower satisfies the loan 
forgiveness requirements, the Secretary cancels the outstanding balance 
and accrued interest on the Direct Consolidation Loan described in 
paragraph (f)(3)(i), (iii) or (iv) of this section or other eligible 
Direct Loans described in paragraph (f)(3)(ii) or (iv) of this section.

(Authority: 20 U.S.C. 1098e)


0
28. Section 685.304 is amended by:
0
A. Revising paragraph (b)(4)(ii).
0
B. Revising paragraph (b)(4)(vi).
    The revisions read as follows:


Sec.  685.304  Counseling borrowers.

* * * * *
    (b) * * *
    (4) * * *
    (ii) Review for the student borrower available repayment options 
including the standard repayment, extended repayment, graduated 
repayment, income contingent repayment, and income-based repayment 
plans, and loan consolidation;
* * * * *
    (vi) Review for the student borrower the conditions under which the 
student borrower may defer or forbear repayment or obtain a full or 
partial forgiveness or discharge of a loan;
* * * * *
 [FR Doc. E8-24922 Filed 10-22-08; 8:45 am]
BILLING CODE 4000-01-P