Publication Date: May 16, 2013
Posted Date: May 16, 2013
Subject: William D. Ford Federal Direct Loan Program; Interim Final Rule
FR Type: Final
[Federal Register Volume 78, Number 95 (Thursday, May 16, 2013)]
[Rules and Regulations]
[Pages 28953-28986]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-11515]
[[Page 28953]]
Vol. 78
Thursday,
No. 95
May 16, 2013
Part II
Department of Education
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34 CFR Part 685
William D. Ford Federal Direct Loan Program; Interim Final Rule
Federal Register / Vol. 78, No. 95 / Thursday, May 16, 2013 / Rules
and Regulations
[[Page 28954]]
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DEPARTMENT OF EDUCATION
34 CFR Part 685
[Docket ID ED-2013-OPE-0066]
RIN 1840-AD13
William D. Ford Federal Direct Loan Program
AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Interim final rule; request for comments.
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SUMMARY: The Secretary amends the William D. Ford Federal Direct Loan
Program (Direct Loan Program) regulations to reflect changes made to
the program by the Moving Ahead for Progress in the 21st Century Act
(MAP-21), Public Law 112-141. Specifically, these interim final
regulations reflect the provisions in MAP-21 that amended the Higher
Education Act of 1965, as amended (HEA) to extend the 3.4 percent
interest rate on Direct Subsidized Loans from July 1, 2012, to July 1,
2013, and to ensure that a borrower may not receive Direct Subsidized
Loans for more than 150 percent of the published length of the
educational program in which the borrower is enrolled. Under the
changes made by MAP-21, if the borrower exceeds this Direct Subsidized
Loan limit, the borrower also becomes responsible for the accruing
interest on the Direct Subsidized Loans.
DATES: These interim final regulations are effective May 16, 2013. We
must receive your comments on or before July 1, 2013.
ADDRESSES: Submit your comments through the Federal eRulemaking Portal
or via U.S. mail, commercial delivery, or hand delivery. We will not
accept comments by fax or by email. Please submit your comments only
once in order to ensure that we do not receive duplicate copies. In
addition, please include the Docket ID at the top of your comments.
Federal eRulemaking Portal: Go to www.regulations.gov to
submit your comments electronically. Information on using
regulations.gov, including instructions for accessing agency documents,
submitting comments, and viewing the docket, is available on the site
under "How To Use This Site.''
Postal Mail, Commercial Delivery, or Hand Delivery: If you
mail or deliver your comments about these interim final regulations,
address them to Nathan Arnold, U.S. Department of Education, 1990 K
Street NW., Room 8084, Washington, DC 20006-8542.
Privacy Note: The Department's policy is to make all comments
received from members of the public available for public viewing in
their entirety on the Federal eRulemaking Portal at
www.regulations.gov. Therefore, commenters should be careful to
include in their comments only information that they wish to make
publicly available.
FOR FURTHER INFORMATION CONTACT: Nathan Arnold, U.S. Department of
Education, 1990 K Street NW., Room 8084, Washington, DC 20006-8542.
Telephone: (202) 219-7134 or via Internet at: Nathan.Arnold@ed.gov.
If you use a telecommunications device for the deaf (TDD) or a text
telephone (TTY), call the Federal Relay Service (FRS), toll free, at 1-
800-877-8339.
SUPPLEMENTARY INFORMATION:
Executive Summary
Purpose of This Regulatory Action: On July 6, 2012, the President
signed into law MAP-21, which, among other things, made two changes to
section 455 of the HEA. First, the law extended for an additional year
the 3.4 percent interest rate that had applied to Direct Subsidized
Loans made to undergraduate students since July 1, 2011. Second, the
law placed a limit on Direct Subsidized Loan eligibility for new
borrowers on or after July 1, 2013. Specifically, the statute provides
that a new borrower on or after July 1, 2013, becomes ineligible to
receive additional Direct Subsidized Loans if the period during which
the borrower has received such loans exceeds 150 percent of the
published length of the borrower's educational program. The borrower
also becomes responsible for accruing interest during all periods as of
the date the borrower exceeds the 150 percent limit. The purpose of the
statutory changes is to encourage students to complete their academic
programs in a timely manner. Timely completion of programs will allow
borrowers to reap the benefits of a postsecondary degree or credential
and avoid incurring unnecessary student loan debt. This interim final
rule implements the required statutory changes.
Summary of the Major Provisions of This Regulation:
Action: This interim final rule incorporates the statutory changes
made by MAP-21 by--
Providing that a Direct Subsidized Loan first disbursed on
or after July 1, 2012, and before July 1, 2013, has an interest rate of
3.4 percent.
Establishing new Direct Loan Program regulations that
provide that a new borrower on or after July 1, 2013, is no longer
eligible to receive additional Direct Subsidized Loans if the period
during which the borrower has received such loans meets or exceeds 150
percent of the published length of the program in which the borrower is
currently enrolled. These borrowers may still receive Direct
Unsubsidized Loans for which they are otherwise eligible.
Establishing new Direct Loan Program regulations that
provide that new borrowers who are ineligible for Direct Subsidized
Loans as a result of these provisions and enroll in a program for which
the borrower would otherwise be eligible for a Direct Subsidized Loan
become responsible for accruing interest on all previously received
Direct Subsidized Loans during all future periods, beginning on the
date of the triggering enrollment.
Prorating periods of Direct Subsidized Loan receipt during
part-time enrollment for purposes of the limit on Direct Subsidized
Loan eligibility.
Establishing special rules for applying the limit on
Direct Subsidized Loan eligibility for borrowers enrolled in
preparatory coursework required for enrollment in an undergraduate or a
graduate or professional program and teacher certification coursework
necessary for a State teaching credential for which the institution
awards no academic credential. These special rules limit the borrower's
responsibility for accruing interest in certain circumstances.
Modifying existing entrance- and exit-counseling
requirements to provide borrowers with information regarding the 150
percent limit on Direct Subsidized Loans.
Please refer to the Significant Proposed Regulations section of this
preamble for a detailed discussion of the major provisions contained in
this interim final rule.
Chart 1 summarizes the interim final regulations and related
benefits, costs, and transfers that are discussed in more detail in the
Regulatory Impact Analysis of this preamble. The Department estimates
that approximately 62,000 borrowers will be affected by these interim
final regulations in the 2013 loan cohort, with the number of borrowers
affected increasing in each cohort to approximately 578,000 borrowers
in the 2023 loan cohort. The benefits of these interim final
regulations include reduced loan balances and lower payments for
borrowers receiving Direct Subsidized Loans between July 1, 2012, and
July 1, 2013, and the creation of incentives for first-time borrowers
on or after July 1, 2013, to complete academic programs in
[[Page 28955]]
a timely manner. The net budget impact of the interim final regulations
is -$3.9 billion over the 2013 to 2023 loan cohorts.
*NOTE: CHART OMITTED -- SEE PDF FILE
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Invitation to Comment
We invite you to submit comments regarding these interim final
regulations. To ensure that your comments have maximum effect in
developing the final regulations, we urge you to identify clearly the
specific section or sections of the interim final regulations that each
of your comments addresses and to arrange your comments in the same
order as the interim final regulations. We will consider these comments
in determining whether to revise these interim final regulations.
We invite you to assist us in complying with the specific
requirements of Executive Orders 12866 and 13563 and their overall
requirement of reducing regulatory burden that might result from these
interim final regulations. Please let us know of any further ways we
could reduce potential costs or increase potential benefits while
preserving the effective and efficient administration of the Direct
Loan Program.
During and after the comment period, you may inspect all public
comments about these interim final regulations by accessing
www.regulations.gov. You may also inspect the comments in person in
room 8083, 1990 K Street, NW., Washington, DC, between 8:30 a.m. and
4:00 p.m. Washington, DC time, Monday through Friday of each week,
except Federal holidays.
Assistance to Individuals With Disabilities in Reviewing the Rulemaking
Record
On request, we will provide an appropriate accommodation or
auxiliary aid to an individual with a disability who needs assistance
to review the comments or other documents in the public rulemaking
record for these interim final regulations. If you want to schedule an
appointment for this type of accommodation or auxiliary aid, please
contact the person listed under FOR FURTHER INFORMATION CONTACT.
Background
On July 6, 2012, the President signed MAP-21 into law. MAP-21
included two changes to the Direct Loan Program. First, MAP-21 amended
section 455 of the HEA to extend the 3.4 percent fixed interest rate
that applies to Direct Subsidized Loans made to undergraduate students
before July 1, 2013. Second, the law placed a limit on Direct
Subsidized Loan eligibility for new borrowers on or after July 1, 2013.
Specifically, a new borrower on or after July 1, 2013 is no longer
eligible to receive additional Direct Subsidized Loans if the period
during which the borrower has received such loans exceeds 150 percent
of the published length of the borrower's educational program.
Additionally, the borrower becomes responsible for accruing interest on
any Direct Subsidized Loan made to the borrower on or after July 1,
2013 if he or she is enrolled in an undergraduate program after
reaching this 150 percent limit. These restrictions apply to a ``first-
time borrower'' on or after July 1, 2013; a first-time borrower is one
who on that date has no outstanding balance of principal or interest on
a Direct Loan Program or FFEL Program loan.
The amendments to section 455 of the HEA that limit eligibility for
Direct Subsidized Loans require implementing regulations. Under MAP-21
these regulations are not subject to the requirements in sections 482
and 492 of the HEA for negotiated rulemaking and publication of
regulations in accordance with the master calendar provisions. These
interim final regulations contain the provisions necessary to implement
the amendments to section 455 of the HEA.
The Department will be making significant changes to its student
financial aid systems to implement the new statutory requirements.
Those changes are described in more detail at the conclusion of this
preamble. The Department will be responsible for the following:
tracking borrowers' Direct Subsidized Loan borrowing in greater detail;
informing institutions of the number of periods a borrower has received
Direct Subsidized Loans; and informing borrowers when they exceed the
eligibility limit and become responsible for accruing interest.
Institutions will not be required to track this information or inform
borrowers of their status on a continual basis. However, for the
Department to ensure the integrity of the Direct Loan Program and
compliance with the new statutory
[[Page 28956]]
and regulatory requirements, institutions will be required to report
certain additional program and borrower enrollment information to the
Department.
Significant Regulations
We discuss substantive issues under the sections of the regulations
to which they pertain. Generally, we do not address regulatory
provisions that are technical or otherwise minor in effect.
Part 685--William D. Ford Federal Direct Loan Program Extension of the
3.4 Percent Fixed Interest Rate on Direct Subsidized Loans until July
1, 2013 (Sec. 685.202(a)(1)(v)(E))
Statute: MAP-21 amended section 455(b)(7)(D) of the HEA to extend,
until July 1, 2013, the period during which the fixed interest rate on
new Direct Subsidized Loans will be 3.4 percent. The interest rate on
new loans was scheduled to increase to a fixed interest rate of 6.8
percent beginning with loans first disbursed on or after July 1, 2012.
The increase in the interest rate to 6.8 percent is now scheduled to
begin with loans first disbursed on or after July 1, 2013.
Current Regulations: Under current Sec. 685.202(a)(1)(v)(E) of the
regulations, the interest rate on a Direct Subsidized Loan first
disbursed on or after July 1, 2011, and before June 30, 2012, is 3.4
percent. Under Sec. 685.202(a)(1)(iv), the interest rate on Direct
Subsidized Loans disbursed on or after July 1, 2012, is 6.8 percent.
Direct Subsidized Loans are only available to undergraduate borrowers.
New Regulations: We are revising Sec. 685.202(a)(1)(v)(E) of the
Direct Loan regulations to reflect that the unpaid balance on a Direct
Subsidized Loan first disbursed on or after July 1, 2011, and before
July 1, 2013, has an interest rate of 3.4 percent.
Reasons: This change reflects the amendment to section 455(b)(7)(D)
of the HEA.
Application of the 150 Percent Direct Subsidized Loan Limit to First-
Time Borrowers on or After July 1, 2013 (Sec. 685.200(f)(1)(i))
Statute: MAP-21 added section 455(q)(1) to the HEA, which provides
that any borrower who is a new borrower on or after July 1, 2013, is
subject to the revised eligibility requirements that limit the
borrower's receipt of Direct Subsidized Loans to 150 percent of the
published length of the borrower's educational program.
Current Regulations: There are no existing regulations.
New Regulations: Section 685.200(f)(1)(i) defines the term ``first-
time borrower'' as an individual who has no outstanding balance of
principal or interest on a loan made under the Direct Loan Program or
the FFEL Program (regardless of loan type) on July 1, 2013, or on the
date the borrower obtains a Direct Loan after July 1, 2013.
The limitation on Direct Subsidized Loan eligibility only applies
to a ``first-time borrower'' on or after July 1, 2013. A borrower who
has an outstanding loan balance as of that date is not subject to the
150 percent Direct Subsidized Loan eligibility limit. If the borrower
had such a loan balance prior to July 1, 2013, and paid off that
balance in full, and then received a new Direct Loan on or after July
1, 2013, the borrower is considered a ``first-time borrower'' and
subject to the Direct Subsidized Loan eligibility limit.
A borrower who has an outstanding balance on a Direct Loan or a
FFEL program loan prior to July 1, 2013, and who consolidates those
loans on or after July 1, 2013, does not become a ``first-time
borrower'' for this purpose by consolidating the loans. Finally, we do
not consider a borrower's outstanding balance on a Federal Perkins loan
in the determination of whether a borrower is a first-time borrower who
will be subject to the Direct Subsidized loan eligibility limit.
Reasons: We have defined the term ``first-time borrower'' to
reflect the provision of MAP-21 that applies the 150 percent Direct
Subsidized Loan eligibility limit to first-time borrowers on or after
July 1, 2013. The definition of ``first-time borrower'' for this
purpose is consistent with how we have treated similarly situated
borrowers for other purposes elsewhere in the Direct Loan and FFEL
program regulations (see, e.g., Sec. Sec. 685.209(a)(1) and
685.217(a)(1)).
Limitations on Eligibility for Direct Subsidized Loans (Sec.
685.200(a)(2), Sec. 685.200(f)(2))
Statute: MAP-21 added section 455(q)(1) to the HEA. Section
455(q)(1) of the HEA provides that any borrower who is a new Direct
Loan borrower on or after July 1, 2013, is not eligible for a Direct
Subsidized Loan if the period of time for which the borrower has
received Direct Subsidized Loans, in the aggregate, exceeds 150 percent
of the published length of the borrower's educational program. Such a
borrower may still receive any Direct Unsubsidized Loan for which the
borrower is otherwise eligible.
Current Regulations: There are no existing regulations.
New Regulations: Section 685.200(f)(2) provides that a first-time
borrower loses eligibility for new Direct Subsidized Loans when the
borrower has no remaining eligibility period, as defined in Sec.
685.200(f)(1)(iv) (this and other defined terms are discussed in the
next section of the preamble). The interim final regulations also
provide that such a borrower may still receive a Direct Unsubsidized
Loan for which the borrower is otherwise eligible. In addition, we have
updated Sec. 685.200(a)(2)(i) to reflect that, in addition to
demonstrating financial need in accordance with Title IV, part F of the
HEA, a first-time borrower must also not have met or exceeded the
limitations on receipt of Direct Subsidized Loans described in Sec.
685.200(f).
Reasons: Section 685.200(f)(2) reflects section 455(q)(1) of the
HEA, which places a limit on eligibility for Direct Subsidized Loans if
a first-time borrower on or after July 1, 2013, receives Direct
Subsidized Loans in excess of 150 percent of the published length of
the borrower's educational program. We are including a cross reference
to Sec. 685.200(f) in Sec. 685.200(a)(2)(i) to ensure that first-time
borrowers understand that eligibility for Direct Subsidized Loans
depends on meeting the eligibility requirements in Sec. 685.200(f).
Calculation of a Borrower's Maximum Eligibility Period, Subsidized
Usage Period, and Remaining Eligibility Period (Sec.
685.200(f)(1)(ii)-(f)(1)(iv))
Statute: Under section 455(q) of the HEA a borrower is no longer
eligible for additional Direct Subsidized Loans if the period of time
for which the borrower has received Direct Subsidized Loans exceeds the
aggregate period of enrollment described in section 455(q)(3). Section
455(q)(3) defines the term ``aggregate period of enrollment'' as the
lesser of: (1) a period equal to 150 percent of the published length of
the educational program in which the student is enrolled; or (2) in the
case of a borrower who was previously enrolled in one or more other
educational programs that began on or after July 1, 2013, a period of
time equal to the difference between 150 percent of the published
length of the longest educational program in which the borrower was, or
is, enrolled and any periods of enrollment in which the borrower
received a Direct Subsidized Loan.
Current Regulations: There are no existing regulations.
New Regulations: Section 685.200(f)(1)(ii) defines the term
[[Page 28957]]
"maximum eligibility period" and describes how we will calculate it
for a borrower. The ``maximum eligibility period'' is the regulatory
term we have adopted to refer to the ``aggregate period of enrollment''
described in section 455(q)(1) and (q)(3)(A) of the HEA. Section
685.200(f)(1)(ii) provides that a borrower's maximum eligibility period
for Direct Subsidized Loans is equal to 150 percent of the length of
the educational program, as published by the institution, in which the
borrower is currently enrolled. Therefore, we will calculate a
borrower's ``maximum eligibility period'' by multiplying the published
length of the borrower's current educational program by 1.5.
Section 685.200(f)(1)(iii) defines the term ``subsidized usage
period'' and provides that we will calculate it by dividing the number
of days in the borrower's loan period for a Direct Subsidized Loan by
the number of days in the academic year for which the borrower receives
the Direct Subsidized Loan. The interim final regulations provide that
this time period will be measured in academic years, which we will
calculate using the information provided by the institution (this
reporting requirement is discussed in more detail in the section of
this preamble covering operational issues). A borrower's ``subsidized
usage period'' includes only those periods of time for which the
borrower received a Direct Subsidized Loan, rather than all of the
periods that a borrower is enrolled in one or more educational
programs.
Section 685.200(f)(1)(iii) also specifies that the number of years
in a borrower's subsidized usage period will be rounded down to the
nearest quarter of a year. For example, a subsidized usage period of
0.53 years would be rounded to 0.5 years and a subsidized usage period
of 0.88 years would be rounded to 0.75 years.
Section 685.200(f)(1)(iv) of the interim final regulations defines
the term ``remaining eligibility period'' and provides that it is
calculated as the difference, measured in academic years, between the
borrower's maximum eligibility period and the sum of the borrower's
subsidized usage periods. When the difference between a borrower's
maximum eligibility period and the sum of the borrower's subsidized
usage periods is zero, the borrower has no remaining eligibility
period. As provided in Sec. 685.200(f)(2), a first-time borrower who
has no remaining eligibility period is no longer eligible for
additional Direct Subsidized Loans. A borrower's ability to regain
eligibility for Direct Subsidized Loans is discussed later in this
preamble.
A borrower's maximum eligibility period and remaining eligibility
period are calculated in the same manner regardless of whether the
borrower graduates, transfers, or withdraws from the program. However,
the interim final regulations treat a borrower who graduates from his
or her program in a timely manner differently for purposes of borrower
responsibility for the accruing interest (see the preamble discussion
of Sec. 685.200(f)(3)).
Section 685.200(f)(1)(ii) provides that we will calculate a
borrower's maximum eligibility period based on the published length of
the educational program in which the borrower is currently enrolled.
Therefore, if a borrower subsequently enrolls in a program that is
shorter or longer than the borrower's current program, we will
recalculate the borrower's maximum eligibility period based on the
length of the new program. Because Sec. 685.200(f)(1)(iv) provides
that a borrower's remaining eligibility period is based (in part) on
the sum of the borrower's subsidized usage periods, subsidized usage
periods accrued during previously-enrolled programs count against the
maximum eligibility period of the program in which the borrower is
currently enrolled.
Examples 1 through 5 illustrate how we will calculate a borrower's
maximum eligibility period, subsidized usage period, and remaining
eligibility period:
Example 1: A borrower enrolls in a two-year undergraduate program
and receives Direct Subsidized Loans for one academic year. The
program's academic year is comprised of 30 weeks (or 210 days) of
instructional time.
[GRAPHIC] [TIFF OMITTED] TR16MY13.000
The borrower's maximum eligibility period is 150 percent of the
two-year program, or three academic years. Because the borrower has
already received a Direct Subsidized Loan for one academic year, the
borrower's subsidized usage period is one academic year. The difference
between the borrower's maximum eligibility period (three academic
years) and the sum of the borrower's subsidized usage periods (one
academic year) is the borrower's remaining eligibility period (two
academic years). (For purposes of simplicity and clarity, subsequent
examples will not include the conversion from days to years for a
borrower's subsidized usage period for each loan and will refer to an
``academic year'' as a ``year'' unless necessary to illustrate the
operation of a specific regulatory provision.)
Example 2: A borrower enrolls in a four-year program and receives
Direct Subsidized Loans for each of the four years.
*NOTE: CHART OMITTED -- SEE PDF FILE
The borrower's program has a published length of four years and a
maximum eligibility period of six years (150 percent of the four-year
program) and the borrower received Direct Subsidized Loans for four
years. The subsidized usage period for each year is one year and the
sum of the subsidized usage periods is four years. At the end of the
fourth year, the borrower's remaining eligibility period is two years,
which is the difference between the borrower's maximum eligibility
period (six years) and the sum of the borrower's subsidized usage
periods (four years).
Example 3: A borrower enrolls in a two-year program and receives
Direct Subsidized Loans for two years. The borrower then transfers to a
four-year program, but has not yet received any Direct Subsidized Loans
for attendance in the four-year program.
*NOTE: CHART OMITTED -- SEE PDF FILE
The borrower's original two-year program had a maximum eligibility
period of three years. Because the borrower received Direct Subsidized
Loans for each of the two years of enrollment, the sum of the
borrower's subsidized usage periods is two years. When the borrower
enrolls in the four-year program, the borrower's maximum eligibility
period is recalculated to six years (150 percent of the four-year
program). The borrower's prior subsidized usage periods in the two-year
program count against the borrower's new maximum eligibility period.
Therefore, the borrower's remaining eligibility period is four years,
which is the difference between the borrower's new maximum eligibility
period (six years) and the sum of the borrower's subsidized usage
periods (two years). (Subsequent examples will only detail the sum of
all of a borrower's subsidized usage periods unless necessary to
clarify the application of the interim final regulations.)
Example 4: A borrower enrolls in a four-year program and receives
Direct Subsidized Loans for two years. The borrower then withdraws
before completing the four-year program, and subsequently enrolls in a
two-year program. The borrower has not yet received any Direct
Subsidized Loans for attendance in the two-year program.
*NOTE: CHART OMITTED -- SEE PDF FILE
The borrower's four-year program has a maximum eligibility period
of six years. When the borrower enrolls in the two-year program, the
borrower's maximum eligibility period is recalculated as three years
(150 percent of the two-year program). The borrower's prior subsidized
usage periods (two years) in the four-year program count against the
borrower's new maximum eligibility period in the two-year program.
Therefore, the borrower's remaining eligibility period is one year,
which is the difference between the borrower's maximum eligibility
period (three years) and the sum of the borrower's subsidized usage
periods (two years).
Example 5: A borrower enrolls in a four-year program and receives
Direct Subsidized Loans for three years. The borrower completes the
degree program at the end of the fourth year, but does not receive any
Direct Subsidized Loans for that year. The borrower then enrolls in a
different four-year undergraduate program, but has not yet received any
Direct Subsidized Loans in the new program.
*NOTE: CHART OMITTED -- SEE PDF FILE
The borrower's original four-year program has a maximum eligibility
period of six years. The borrower received Direct Subsidized Loans for
three years. The borrower's maximum eligibility period in the second
four-year program is also six years, and the borrower's prior
subsidized usage periods count against the borrower's maximum
eligibility period in the second program. Therefore, the borrower's
remaining eligibility period is three years, which is the difference
between the borrower's maximum eligibility period (six years) and the
sum of the borrower's subsidized usage periods (three years). The
borrower's fourth year of enrollment in the original program has no
effect on the borrower's remaining eligibility period because the
borrower did not receive any Direct Subsidized Loans for that year.
In addition to the standard calculations described above, we note
that Sec. 685.301(a)(10) and (c) continue to apply and effectively
limit the length of time a borrower may receive loans under the interim
final regulations.
Specifically, Sec. 685.301(a)(10) describes the minimum
permissible length of a loan period. If the borrower's remaining
eligibility period (as calculated under Sec. 685.200(f)(1)(iv)) is
less than the minimum permissible loan period associated with the
borrower's program of study, then the institution may not disburse a
Direct Subsidized Loan to that borrower.
Under Sec. 685.301(c), borrowers enrolled in clock-hour, non-term,
or certain non-standard term programs are not eligible for a new annual
loan limit until they complete either the weeks of instructional time
or clock hours required. Thus, students enrolled in these types of
programs are effectively limited to receiving Direct Subsidized Loans
for 100 percent of the length of the program, notwithstanding the 150
percent maximum eligibility period of the program as calculated under
section 455(q) of the HEA. As a result, the 150 percent limit does not
affect a borrower enrolled in such a program unless the borrower
subsequently enrolls in another educational program (whether a
standard-term, non-standard-term, or non-term program).
The requirements of Sec. 685.301(a)(10) are summarized in Table 1,
below. Examples 6 and 7 illustrate the effect on
[[Page 28959]]
the 150 percent limitations of Sec. 685.301(a)(10) and (c),
respectively.
*NOTE: CHART OMITTED -- SEE PDF FILE
------------------------------------------------------------------------
Example 6: The borrower is enrolled in a 22-week (or 154-day), 800-
clock-hour certificate program that defines its academic year as 26
weeks (or 182 days) of instructional time. The borrower receives a
Direct Subsidized Loan that covers the length of the program. Upon
completing the certificate program, the borrower enrolls in a two-year
associate's degree program that defines its academic year as 30 weeks
(or 210 days) of instructional time, and that uses credit hours and
semesters. In each of the borrower's first two years in the associate's
degree program, the borrower receives a Direct Subsidized Loan for the
academic year. The borrower has not yet completed the associate's
degree program, and is requesting loans for the third year.
*NOTE: CHART OMITTED -- SEE PDF FILE
---------------------------------------------------
The borrower's 22-week certificate program, which is the equivalent
of 0.85 academic years
[GRAPHIC] [TIFF OMITTED] TR16MY13.001
has a maximum eligibility period of 1.27 academic years (0.85 academic
years multiplied by 150 percent). The borrower's subsidized usage
period for the certificate program is the same as the length of the
program, 0.85 academic years
[GRAPHIC] [TIFF OMITTED] TR16MY13.002
which is rounded down to the nearest quarter-year, or 0.75 years. Upon
transferring to the two-year program, the borrower's maximum
eligibility period is three years. After two years in the two-year
program, during which the borrower receives Direct Subsidized Loans
equaling two years, the sum of the borrower's subsidized usage periods
is 2.75 years (two years from the two-year program plus 0.75 years from
the certificate program). After two years in the two-year program, the
borrower's remaining eligibility period is 0.25 years (the difference
between the two-year program's maximum eligibility period (three years)
and the sum of the borrower's subsidized usage periods (2.75 years)).
The borrower has a remaining eligibility period of 52.5 days (0.25
years x 210 days in an academic year). Because the borrower is enrolled
in a program that uses credit hours and semesters, under Sec.
685.301(a)(10), the minimum loan period for this borrower is one term.
Because the borrower's remaining eligibility period of 52.5 days is
less than the length of a semester (generally 98-112 days, or 14-16
weeks), the institution cannot disburse a Direct Subsidized Loan to
this borrower, even though the borrower's remaining eligibility period
is greater than zero.
Example 7: The borrower is enrolled in a one-year, 900 clock hour
certificate program that defines its academic year as 26 weeks (or 182
days) of instructional time. The institution disburses a Direct
Subsidized Loan to the borrower for the academic year. The borrower
completes only 700 clock hours of instructional time during the
academic year.
*NOTE: CHART OMITTED -- SEE PDF FILE
------------------------------------------------------------------------
The borrower's one-year program has a maximum eligibility period of
1.5 years and the borrower's subsidized usage period is one year. The
borrower's remaining eligibility period is 0.5 years (the difference
between the borrower's maximum eligibility period (1.5 years) and the
sum of the borrower's subsidized usage periods (one year)). Because the
program is a clock hour program, and because the borrower has only
completed 700 clock hours of instructional time, the borrower may not
progress to the next academic year. Because Sec. 685.301(c) applies,
this borrower is not eligible to receive an additional Direct
Subsidized Loan in this program, notwithstanding the borrower's
remaining eligibility period of 0.5 years.
Example 7 illustrates that borrowers in clock-hour, non-term, and
certain non-standard term programs are effectively limited to receiving
Direct Subsidized Loans for 100 percent of the
[[Page 28960]]
length of the program. Borrowers in such programs are not able to
receive Direct Subsidized Loans for their remaining eligibility period
unless they subsequently enroll in another program, as illustrated in
example 6.
Reasons: MAP-21 added section 455(q)(3)(A) to the HEA, which
provides the method by which a borrower's eligibility for Direct
Subsidized Loans is determined. To implement this provision, it is
necessary to issue regulations that describe the statutory calculations
with greater specificity.
Section 685.200(f)(1)(ii) implements section 455(q)(3) of the HEA
and establishes the rule for determining a borrower's maximum
eligibility period for Direct Subsidized Loans. To avoid potentially
misleading borrowers, we elected to use the term ``maximum eligibility
period'' rather than the statutory term ``aggregate period of
enrollment.'' Because the 150 percent limit on eligibility is measured
by the period for which a borrower receives Direct Subsidized Loans,
rather than the period of time that a borrower is enrolled, using the
statutory term could cause borrower confusion.
Section 685.200(f)(1)(ii) bases the calculation of a borrower's
maximum eligibility period on the published length of the program in
which the borrower is currently enrolled because failing to do so would
result in inequitable treatment of similarly situated borrowers. For
example, if enrolling in a new, shorter educational program did not
result in recalculating a borrower's maximum eligibility period,
transfer and non-transfer students would have significantly divergent
remaining eligibility periods simply by virtue of enrollment in a
different program. Suppose a borrower is enrolled in a four-year
program, receives a Direct Subsidized Loan for one year, and then
transfers to a two-year program. If we did not recalculate the
borrower's maximum eligibility period, that borrower would be eligible
for five additional years of Direct Subsidized Loans. In contrast, a
borrower who had been enrolled in the two-year program from the
beginning and also received a Direct Subsidized Loan for one year would
only have two years of eligibility remaining. Without recalculating a
borrower's maximum eligibility period when the borrower enrolls in a
different program, otherwise-equivalent borrowers would have
inconsistent and inequitable eligibility periods. To treat all
borrowers who receive Direct Subsidized Loans equitably, regardless of
whether they have previously enrolled in programs of differing
durations for which they received Direct Subsidized Loans, we are
determining eligibility for Direct Subsidized Loans in this manner.
Section 685.200(f)(1)(iii) of the interim final regulations, which
defines the term ``subsidized usage period,'' is necessary to implement
the requirement in section 455(q)(1) of the HEA that the borrower not
receive Direct Subsidized Loans for a period in excess of the
borrower's maximum eligibility period. This provision provides a method
to calculate the period for which a borrower has received Direct
Subsidized Loans to ensure the statutory maximum is not exceeded. We
chose to round borrowers' subsidized usage periods down to the nearest
quarter year to make it easier for borrowers and institutions to
understand and communicate a borrower's eligibility for Direct
Subsidized Loans. In addition, we chose to round down to ensure that
borrowers were not denied eligibility for Direct Subsidized Loans
solely on the basis of rounding.
Because section 455(q)(3)(A) of the HEA does not explicitly provide
a method for calculating a borrower's remaining eligibility period, we
needed to issue regulations to establish rules for calculation of that
period. Section 685.200(f)(1)(iv) provides that a borrower's
``remaining eligibility period'' is defined as the difference, measured
in academic years, between the borrower's maximum eligibility period
and the sum of the borrower's subsidized usage periods with certain
exceptions as discussed in the next paragraph. The remaining
eligibility period will inform borrowers of the period they have
remaining before becoming ineligible for Direct Subsidized Loans.
Finally, as explained above, Sec. 685.200(f)(1)(iv) is subject to
the existing provisions of Sec. 685.301(a)(10) and (c), which govern
the minimum length of loan periods for students enrolled in clock hour,
non-term, or certain non-standard term programs. Because MAP-21 did not
include any changes to the statutory provisions reflected in Sec.
685.301(a)(10) and (c), the calculations specified under Sec.
685.200(f)(1) must be consistent with those existing regulatory
requirements.
Exceptions to the Calculation of the 150 Percent Limit for Students
Enrolled on Less Than a Full-Time Basis or Who Receive the Full Annual
Loan Limit for a Loan Period of Less Than an Academic Year (Sec.
685.200(f)(4))
Statute: MAP-21 added section 455(q)(3)(B) to the HEA, which
directs the Department to specify in regulations how the aggregate
period of enrollment will be calculated with respect to borrowers who
are enrolled on less than a full-time basis. While section 428(b)(1)(A)
of the HEA permits borrowers to receive an amount equal to the full
annual loan limit for periods of less than an academic year, revised
section 455(q) of the HEA does not provide a specific rule for applying
the 150 percent limit to these borrowers.
Current Regulations: There are no existing regulations.
New Regulations: The interim final regulations provide two
exceptions to the rules for the calculation of a borrower's subsidized
usage period in Sec. 685.200(f)(1)(iii).
The first exception applies to borrowers who receive the full
Direct Subsidized Loan annual loan limit for a period of enrollment
that is less than an academic year. Section 685.200(f)(4)(i) provides
that, in this circumstance, a borrower's subsidized usage period is one
year notwithstanding the subsidized usage period calculated under Sec.
685.200(f)(1)(iii).
The second exception applies to borrowers who are enrolled in an
educational program on less than a full-time basis. Section
685.200(f)(4)(ii) of the interim final regulations provides that,
except as provided in Sec. 685.200(f)(4)(i) (the exception described
in the preceding paragraph), the Secretary will prorate the subsidized
usage period for borrowers enrolled on a half-time or three-quarter-
time basis. This proration is done by multiplying the borrower's
subsidized usage period by 0.5 (for half-time) or 0.75 (for three-
quarter-time), respectively.
Examples 8 through 11 illustrate the calculation of a borrower's
maximum eligibility period, subsidized usage period, and remaining
eligibility period if the borrower receives a Direct Subsidized Loan in
the amount of the full annual loan limit for a period less than an
academic year, for less than full-time enrollment, or both.
Example 8: A first-year borrower is enrolled in a four-year,
semester-based program and has received a Direct Subsidized Loan in the
amount of $3,500 (the full annual loan limit) that covers the fall
semester. The borrower does not enroll in the spring semester.
*NOTE: CHART OMITTED -- SEE PDF FILE
-----------------------------------------------------------------
The borrower's four-year program has a maximum eligibility period
of six years. The borrower received a Direct Subsidized Loan in the
amount of the full annual loan limit for one term. Under Sec.
685.200(f)(1)(iii), the borrower's
[[Page 28961]]
subsidized usage period would be 0.5 years
[GRAPHIC] [TIFF OMITTED] TR16MY13.003
However, because the borrower received a Direct Subsidized Loan in the
amount of a full annual loan limit for a period of less than a full
academic year, Sec. 685.200(f)(4)(i) applies, and the borrower's
subsidized usage period is one year, notwithstanding the subsidized
usage period calculated under Sec. 685.200(f)(1)(iii). Therefore, the
borrower's remaining eligibility period is five years, which is the
difference between the borrower's maximum eligibility period (six
years) and the sum of the borrower's subsidized usage periods (one
year).
Example 9: A borrower enrolls on a half-time basis for two years of
a four-year program and receives Direct Subsidized Loans for each of
the two academic years.
*NOTE: CHART OMITTED -- SEE PDF FILE
------------------------------------------------------------------------
The borrower's four-year program has a maximum eligibility period
of six years. Because the borrower was enrolled on a half-time basis,
each of the borrower's subsidized usage periods is prorated by
multiplying the subsidized usage period by 0.5, resulting in two
separate 0.5-year subsidized usage periods, for a total subsidized
usage period of one year. Therefore, the borrower's remaining
eligibility period is five years, the difference between the borrower's
maximum eligibility period (six years) and the sum of the borrower's
prorated subsidized usage periods (one year).
Example 10: A borrower enrolls in a four-year program and receives
Direct Subsidized Loans for all four academic years. The borrower is
enrolled full time during the first academic year, half time during the
second and third academic years, and three-quarter time during the
fourth year.
*NOTE: CHART OMITTED -- SEE PDF FILE
----------------------------------------------------------------------
The borrower's maximum eligibility period for the four-year program
is six years. Because the borrower had varying enrollment levels during
the four years, prorated subsidized usage periods must be determined
and then added together to determine the borrower's remaining
eligibility period. As the table above shows, in the first year, the
borrower's subsidized usage period is not prorated because the borrower
is enrolled full time. In the second and third years, however, the
borrower's subsidized usage period is prorated by 0.5 because the
borrower is enrolled half time. In the fourth year, the borrower's
subsidized usage period is prorated by 0.75 because the borrower is
enrolled three-quarter time. If the borrower had been enrolled full
time during all four academic years, and received Direct Subsidized
Loans for each of those years, the sum of the borrower's subsidized
usage periods would be four years at the end of the four academic
years. However, because the borrower was not enrolled on a full-time
basis during all four academic years, and has subsidized usage periods
that are prorated, the sum of the borrower's subsidized usage periods
is 2.75 years. As a result, the borrower's remaining eligibility period
is 3.25 years, which is the difference between the borrower's maximum
eligibility period (six years) and the sum of the borrower's subsidized
usage periods (2.75 years).
Example 11: Two first-year borrowers are enrolled in a two-year,
semester-based program. Both borrowers are enrolled on a half-time
basis. Borrower 1 receives a Direct Subsidized Loan for the fall term
in the amount of $3,500, which is the full annual loan limit. Borrower
2 receives a Direct Subsidized Loan for the fall term in the amount of
$3,000. Neither borrower enrolls in the spring semester.
<b>*NOTE: CHART OMITTED -- SEE PDF FILE</b>
------------------------------------------------------------------------
The two-year program in which the borrowers are enrolled has a
maximum eligibility period of three years. Borrower 1 received a Direct
Subsidized Loan in the amount of the full annual loan limit for one
term. Borrower 2 received a Direct Subsidized Loan for one term, but
for less than the amount of the full annual loan limit. Both borrowers
were enrolled on a half-time basis.
For Borrower 1, the calculated subsidized usage period under Sec.
685.200(f)(1)(iii) would be 0.5 years
[GRAPHIC] [TIFF OMITTED] TR16MY13.004
However, because Borrower 1 received a subsidized loan in the amount of
the full annual loan limit for a period of less than a full academic
year, Sec. 685.200(f)(4)(i) applies. Therefore, the borrower's
subsidized usage period is one year and is not prorated.
For Borrower 2, the calculated subsidized usage period is 0.5 years
[GRAPHIC] [TIFF OMITTED] TR16MY13.005
Because the borrower's loan amount is for less than the full annual
loan limit, Sec. 685.200(f)(4)(i) does not apply. Therefore, in
accordance with
[[Page 28962]]
Sec. 685.200(f)(4)(ii), Borrower 2's subsidized usage period is
prorated based on the borrower's half-time enrollment status. Because
Borrower 2 is enrolled on a half-time basis, the borrower's subsidized
usage period of 0.5 years is multiplied by 0.5, resulting in a prorated
subsidized usage period of 0.25 years.
For Borrower 1, the remaining eligibility period is two years,
which is the difference between the borrower's maximum eligibility
period (three years) and the sum of the borrower's subsidized usage
periods (one year). For Borrower 2, the remaining eligibility period is
2.75 years, which is the difference between the borrower's maximum
eligibility period (three years) and the sum of the borrower's
subsidized usage periods (0.25 years).
Reasons: Section 685.200(f)(4)(i) provides the first exception to
the definition of the term ``subsidized usage period'': If a first-time
borrower receives a Direct Subsidized Loan in an amount that is equal
to the annual loan limit for a loan period that is less than a full
academic year in length, the subsidized usage period is one year.
Under current law and regulations, a borrower can receive a Direct
Subsidized Loan in an amount equal to the full annual loan limit for a
period that is as short as a term (e.g., a semester). Absent Sec.
685.200(f)(4)(i), a borrower would be able to partially circumvent the
limitations on Direct Subsidized Loan eligibility enacted by MAP-21: An
institution could double a borrower's Direct Subsidized Loan
eligibility by disbursing the full annual Direct Subsidized Loan limit
for a single term of the academic year (e.g., one semester). If this
pattern were extended for the duration of the program, the borrower's
subsidized usage period would be only 0.5 years for each academic year
and the borrower would have effectively doubled his or her eligibility
for Direct Subsidized Loans. Section 685.200(f)(4)(i) prevents this
type of circumvention of MAP-21's limitations on Direct Subsidized Loan
eligibility.
Section 685.200(f)(4)(ii) provides the second exception to the
definition of the term ``subsidized usage period'': If a first-time
borrower is enrolled on a half-time or three-quarter-time basis, the
borrower's subsidized usage period is prorated by multiplying the
borrower's subsidized usage period, as determined in accordance with
Sec. 685.200(f)(1)(iii), by 0.5 or 0.75, respectively. Section
685.200(f)(4)(ii) implements revised section 455(q)(3)(B)(i) of the
HEA, which directs the Secretary to specify in regulation how a
borrower's subsidized usage period will be calculated when the borrower
is enrolled on less than a full-time basis. Unlike other Federal
student aid programs, such as the Federal Pell Grant Program, Direct
Loans are not prorated based on the borrower's enrollment status. Thus,
if a borrower who is enrolled on a part-time basis has the same costs
and financial need as a borrower who is enrolled on a full-time basis,
then both borrowers will be eligible for a Direct Subsidized Loan in
the same amount (assuming the borrowers' years in school are
equivalent). Because borrowers may decide to enroll on less than a
full-time basis for many different reasons, we believe it is unlikely
that failing to prorate such borrowers' subsidized usage periods would
provide a sufficient incentive for such borrowers to enroll on a full-
time basis. Furthermore, we believe that not prorating a borrower's
subsidized usage period based on the borrower's enrollment status would
unfairly punish borrowers who choose to enroll on a part-time basis, by
further limiting such borrower's eligibility for Direct Subsidized
Loans. Finally, prorating a borrower's subsidized usage period will not
result in these borrowers receiving significantly higher levels of
Direct Subsidized Loan funds than borrowers who are enrolled full time,
because many borrowers who take out Direct Subsidized Loans in
significant amounts will reach the aggregate Direct Subsidized Loan
limit of $23,000 prior to reaching their maximum eligibility period
under these provisions.
Borrower Responsibility for Accruing Interest on Existing Direct
Subsidized Loans for Borrowers Who Continue Enrollment After Reaching
the 150 Percent Subsidized Loan Limit (Sec. 685.200(f)(3))
Statute: Section 455(q)(2) of the HEA, added by MAP-21, provides
that interest accrues on all Direct Subsidized Loans disbursed to
certain borrowers on or after July 1, 2013. A borrower is responsible
for the accruing interest on these loans if the borrower is ineligible
for additional Direct Subsidized Loans because of the 150 percent
limitation and is enrolled in a program that would otherwise qualify
the borrower for a Direct Subsidized Loan. Section 455(q)(2) further
provides that interest on a Direct Subsidized Loan is paid and
capitalized in the same manner as interest on a Direct Unsubsidized
Loan.
Current Regulations: There are no existing regulations.
New Regulations: Section 685.200(f)(3)(i) describes the
circumstances under which a first-time borrower becomes responsible for
accruing interest on his or her existing Direct Subsidized Loans.
Notwithstanding any other provision in the regulations that limits the
borrower's responsibility for accruing interest, the borrower exceeds
the eligibility limit and becomes responsible for accruing interest on
all Direct Subsidized Loans if the borrower: (1) has no remaining
eligibility period; and (2) attends any undergraduate program or
preparatory coursework on at least a half-time basis at an eligible
institution that participates in the Title IV, HEA programs. (Note:
throughout this preamble the terms enrollment and attendance are used
interchangeably to describe a borrower taking courses at a program.)
Attendance in an eligible undergraduate program causes a borrower
to become responsible for accruing interest even if the borrower does
not request or receive a new loan. A borrower's enrollment in graduate
or professional programs, enrollment on less than a half-time basis, or
enrollment in programs at an institution that does not participate in
the Title IV loan programs will not result in borrower responsibility
for accruing interest because borrowers in those programs are not
eligible for Direct Subsidized Loans. In addition, if a borrower has a
Direct Consolidation Loan that repaid a Direct Subsidized Loan, and
then the borrower subsequently becomes responsible for accruing
interest, interest that accrues on that portion of the Direct
Consolidation Loan is the responsibility of the borrower.
There are three circumstances in which a borrower becomes
responsible for accruing interest on all Direct Subsidized Loans. The
first is when a borrower who has no remaining eligibility period for
Direct Subsidized Loans continues enrollment in the program for which
the borrower received the loans. The second is when a borrower has no
remaining eligibility period for a program and, after withdrawing or
transferring, enrolls in a different program that is equal to or
shorter in duration than the prior program. The third is when a
borrower who previously received Direct Subsidized Loans and who still
has some remaining eligibility period for that program withdraws or
transfers from that program to a program of a shorter duration than the
prior program. In some cases, enrolling in another program results in
the sum of the borrower's subsidized usage periods equaling or
exceeding the new program's maximum eligibility period. In such cases,
the borrower's enrollment
[[Page 28963]]
in the shorter program causes the borrower to have no remaining
eligibility period (which causes a loss of eligibility for additional
Direct Subsidized Loans) and to become responsible for accruing
interest on the outstanding loans.
Under Sec. 685.200(f)(3)(i), a borrower becomes responsible for
accruing interest on his or her outstanding loans from the date that
the conditions of Sec. 685.200(f)(3)(i)(A) and (B) are both met. The
borrower is responsible for accruing interest when the borrower is
enrolled at least half time at an eligible institution, during the
grace period, during deferment periods, or during certain periods when
the borrower is repaying Direct Loans under the Pay As You Earn or
Income-Based Repayment plans (existing regulations governing those
repayment plans provide that under certain circumstances borrowers are
not responsible for accruing interest).
Section 685.200(f)(3)(ii) provides that, if a borrower previously
became responsible for accruing interest on a Direct Subsidized Loan
and then receives a Direct Consolidation Loan that repays that loan,
the borrower continues to be responsible for the accruing interest on
the portion of that Direct Consolidation Loan that repaid the Direct
Subsidized Loan.
Section 685.200(f)(3)(iii) provides that, for any outstanding
Direct Subsidized Loans for which the borrower becomes responsible for
accruing interest, interest that accrued prior to the date on which the
borrower became responsible for accruing interest does not become the
borrower's responsibility; rather, the borrower is responsible only for
the interest that accrues after the borrower meets both conditions
specified in Sec. 685.200(f)(3)(i)(A) and (B) (we use the term
``accruing interest'' in this preamble to indicate this distinction).
Borrowers have the option of paying the interest portion or allowing
interest to be capitalized. Unpaid interest is capitalized in the same
manner as it is on a Direct Unsubsidized Loan.
Section 685.200(f)(3)(iv) specifies the effect on a borrower's
responsibility for accruing interest caused by attendance in a
subsequent program if the borrower completes his or her current program
in a timely manner. If a borrower completes an undergraduate program
without becoming responsible for accruing interest, attendance in a
subsequent program will not cause borrower responsibility for accruing
interest on previously received loans, even if the borrower has no
remaining eligibility period.
Examples 12 through 16 illustrate how a borrower becomes
responsible for accruing interest under Sec. 685.200(f)(3):
Example 12: A borrower enrolls in a four-year program, but takes
six years to complete the program and receives Direct Subsidized Loans
for each of those six years. The borrower then continues to be enrolled
in the same program for a seventh year.
*NOTE: CHART OMITTED -- SEE PDF FILE
------------------------------------------------------------------------
The maximum eligibility period for the four-year program is six
years. The borrower received Direct Subsidized Loans for all six years,
meaning that the borrower is no longer eligible for additional Direct
Subsidized Loans. Because the borrower continues enrollment in the same
program after losing eligibility for additional Direct Subsidized
Loans, the borrower becomes responsible for accruing interest on all of
his or her outstanding Direct Subsidized Loans, regardless of whether
he or she requests or receives additional Federal student aid. If the
borrower had graduated or discontinued enrollment before the seventh
year, the borrower would not have become responsible for accruing
interest on his or her Direct Subsidized Loans.
Example 13: A borrower enrolls in a four-year program, receives
Direct Subsidized Loans for four years, but discontinues enrollment
before completing the program. The borrower then enrolls in a two-year
program, but does not request Federal student aid of any kind.
*NOTE: CHART OMITTED -- SEE PDF FILE
------------------------------------------------------------------------
The borrower's four-year program has a maximum eligibility period
of six years. The borrower receives Direct Subsidized Loans for the
four years the borrower is enrolled in that program. Upon withdrawing
from that program, the borrower would have been eligible for Direct
Subsidized Loans for an additional two years if he or she had remained
in that program. However, when the borrower enrolls in the two-year
program, the borrower's maximum eligibility period is recalculated as
three years. Furthermore, the period during which the borrower
previously received Direct Subsidized Loans counts against the
borrower's new maximum eligibility period. The borrower is ineligible
for additional Direct Subsidized Loans because the borrower has no
remaining eligibility period (the borrower's maximum eligibility period
upon enrollment in the two-year program (three years) is less than the
sum of the borrower's subsidized usage periods (four years)). The
borrower's enrollment in the shorter program causes the borrower to
become ineligible for additional Direct Subsidized Loans and to become
responsible for accruing interest on all previously received Direct
Subsidized Loans.
We note that, although the calculations in example 13
arithmetically result in a remaining eligibility period that is a
negative number, the effect is the same as if the borrower had a
remaining eligibility period of zero years and then enrolled in a
program of equal or shorter duration. A negative remaining eligibility
period does not require that the borrower or institution return any
portion of previously disbursed Direct Subsidized Loan.
[[Page 28964]]
Example 14: A borrower enrolls in a four-year undergraduate program
and receives Direct Subsidized Loans for six years. The borrower then
enrolls in a two-year master's degree program.
*NOTE: CHART OMITTED -- SEE PDF FILE
------------------------------------------------------------------------
The borrower's four-year program has a maximum eligibility period
of six years. The borrower received Direct Subsidized Loans for six
years. When the borrower enrolls in the graduate program, the borrower
is not eligible for additional Direct Subsidized Loans because graduate
students are not eligible for Direct Subsidized Loans. Under Sec.
685.200(f)(3)(i)(B), enrollment in such programs does not result in a
borrower becoming responsible for accruing interest. Therefore,
enrollment in the master's degree program does not cause the borrower
to become responsible for accruing interest on Direct Subsidized Loans.
Example 15: A borrower enrolls in a four-year undergraduate
program, receives Direct Subsidized Loans for four years, and graduates
on time. The borrower then enrolls in a two-year undergraduate program.
*NOTE: CHART OMITTED -- SEE PDF FILE
------------------------------------------------------------------------
The borrower's four year program had a maximum eligibility period
of six years and the borrower received Direct Subsidized Loans for four
years in that program. When the borrower enrolls in the two-year
program, the borrower's maximum eligibility period is recalculated as
three years. The sum of the borrower's subsidized usage periods (four
years) exceeds the borrower's maximum eligibility period (three years);
the borrower has no remaining eligibility period and is therefore no
longer eligible for Direct Subsidized Loans. Under Sec.
685.200(f)(3)(i), because the borrower had no remaining eligibility
period upon enrollment in an undergraduate program, the borrower would
normally become responsible for accruing interest. However, under Sec.
685.200(f)(3)(iv), because the borrower graduated from the four-year
program before becoming responsible for accruing interest, enrollment
in the two-year program does not result in the borrower becoming
responsible for accruing interest on any loans.
Example 16: A borrower enrolls in a two-year program and receives
Direct Subsidized Loans for two years. The borrower does not complete
that program, but transfers to a four-year program and receives four
years of Direct Subsidized Loans, graduating on time. The borrower then
enrolls in a one-year certificate program.
*NOTE: CHART OMITTED -- SEE PDF FILE
---------------------------------------------------------------------------
The borrower transferred to the four-year program before becoming
responsible for accruing interest in the two-year program. When the
borrower transferred, the borrower's maximum eligibility period was
recalculated as six years, resulting in a remaining eligibility period
of four years. The borrower completed the four-year program before
becoming responsible for accruing interest. Therefore, under Sec.
685.200(f)(3)(iv), upon enrollment in the one-year certificate program,
the borrower does not become responsible for accruing interest on any
of the borrower's previously received Direct Subsidized Loans. However,
the borrower is not eligible to receive Direct Subsidized Loans while
attending the one-year certificate program.
Reasons: MAP-21 added section 455(q)(2) to the HEA, which provides
that if a borrower is no longer eligible for Direct Subsidized Loans
and is enrolled in a program of education or training for which the
borrower is otherwise eligible to receive Direct Subsidized Loans,
interest will accrue on all of the borrower's Direct Subsidized Loans
that were disbursed to the borrower on or after July 1, 2013. We
believe that the limit on subsidy duration in MAP-21 was meant to
encourage timely completion.\1\ We have therefore drafted implementing
regulations consistent with that goal.
---------------------------------------------------------------------------
\1\ The Senate Appropriations Committee's report on the 2013
Appropriations bill funding the Department states that limiting
``subsidy duration will encourage borrowers to complete their
educational program in a timelier manner.'' S.Rpt. 112-176, 112th
Cong. 2d Sess. at 190 (2012).
---------------------------------------------------------------------------
Section 685.200(f)(3) provides that a borrower becomes responsible
for accruing interest on all Direct Subsidized Loans only if the
borrower has no remaining eligibility period and then enrolls at least
half time in an eligible undergraduate program or preparatory
coursework at an institution that participates in the Title IV, HEA
programs. This is consistent with the requirements of section 455(q) of
the HEA. Specifically, the statute provides a progression of actions
and consequences
[[Page 28965]]
for Direct Subsidized Loan borrowers which ultimately results in a
borrower becoming responsible for accruing interest. First, section
455(q)(3)(A) of the HEA provides that a borrower may not receive Direct
Subsidized Loans in excess of the borrower's maximum eligibility
period. Second, section 455(q)(1) of the HEA provides that such
borrowers lose eligibility for Direct Subsidized Loans if the borrower
meets or exceeds his or her maximum eligibility period. Finally,
section 455(q)(2) of the HEA provides that, if the borrower is enrolled
in a program of education or training after having lost eligibility for
Direct Subsidized Loans, interest on the borrower's Direct Subsidized
Loans disbursed on or after July 1, 2013 accrues, notwithstanding any
other provision of law that would relieve the borrower of the
obligation to pay interest.
A consequence of Sec. 685.200(f)(3)(i) is that a borrower will
become responsible for accruing interest on outstanding Direct
Subsidized Loans by enrolling in an undergraduate program that is
shorter than the program for which the borrower previously received
Direct Subsidized Loans, even if the borrower does not receive new
Direct Subsidized Loans. For the reasons articulated in the preamble
discussion of Sec. 685.200(f)(1)(ii)-(iv), the interim final
regulations require that a borrower's maximum eligibility period
changes to reflect the length of the program in which the borrower is
currently enrolled. If a borrower had previously borrowed for a longer
program (even if the borrower had a remaining eligibility period
greater than zero for that program), then, by virtue of the previous
borrowing, it is possible for the borrower to have no remaining
eligibility period for the shorter program even if the borrower does
not receive any Direct Subsidized Loans for the shorter program. By
enrolling in the shorter program, the borrower immediately satisfies
the condition of section 455(q)(3)(A) of the HEA (that the borrower is
no longer eligible for Direct Subsidized Loans) as well as the
condition of section 455(q)(2) of the HEA (that the borrower is
enrolled after losing eligibility for additional Direct Subsidized
Loans). Therefore, to implement section 455(q) of the HEA, the interim
final regulations require that enrollment in a shorter program after
meeting or exceeding the borrower's maximum eligibility period will
result in the borrower becoming responsible for accruing interest on
all outstanding Direct Subsidized Loans.
We recognize that under this framework, a borrower could become
responsible for accruing interest on his or her Direct Subsidized Loans
by enrolling in a program of equal or shorter duration even if the
borrower completed a prior program in a timely manner. Because we
believe that MAP-21 was intended to encourage borrowers to complete
their programs in a timely manner, Sec. 685.200(f)(3)(iv) specifies
that such a circumstance will not result in borrower responsibility for
accruing interest (see examples 15 and 16). Absent such treatment,
borrowers who complete their programs in a timely manner, consistent
with the statutory intent, could still become responsible for accruing
interest. In addition, without this treatment, the regulations would
create a disincentive for borrowers who completed their programs on
time but are nevertheless unemployed or underemployed and need to
return to a short-term educational program for job retraining. For
these reasons, we have specified in regulation that borrowers who
complete their programs in a timely manner do not become responsible
for accruing interest, consistent with the intent of MAP-21.
Section 685.200(f)(3)(i) also specifies that borrowers who become
responsible for accruing interest on outstanding Direct Subsidized
Loans will be responsible for such interest for the life of the loans,
including periods of in-school status, grace periods, deferment
periods, and certain periods of repayment under the Income-Based
Repayment and Pay As You Earn Repayment plans. Section 455(q)(2) of the
HEA provides that the borrower is responsible for accruing interest on
outstanding Direct Subsidized Loans ``notwithstanding subsection
(f)(1)(A) or any other provision of this title.'' Section 455(f)(1)(A)
of the HEA provides that during periods of eligible deferments,
interest does not accrue and is not paid by the borrower. Therefore,
under section 455(q)(2) a borrower who becomes responsible for accruing
interest does so even during periods of deferment. The interim final
regulations implement this statutory requirement by providing that,
when a borrower becomes responsible for accruing interest on Direct
Subsidized Loans, interest accrues and is the responsibility of the
borrower even during periods of deferment. Similarly, section 455(a)(2)
of the HEA requires that the borrower becomes responsible for accruing
interest during similar periods when interest would not otherwise be
the responsibility of the borrower. The interim final regulations
therefore require that, when repaying Direct Subsidized Loans under the
Pay As You Earn or Income-Based Repayment plans, a borrower who would
otherwise not be responsible for accruing interest during certain
periods of repayment will become responsible for such interest if the
borrower meets the conditions of Sec. 685.200(f)(3).
Finally, Sec. 685.200(f)(3)(i)(B) reflects section 455(q)(2) of
the HEA, which provides that a borrower becomes responsible for
accruing interest if the borrower is enrolled in a program for which
the borrower is otherwise eligible to receive a Direct Subsidized Loan.
Regaining Eligibility for Direct Subsidized Loans (Sec. 685.200(f)(5))
Statute: MAP-21 added section 455(q)(1) to the HEA to provide that
a borrower loses eligibility for Direct Subsidized Loans if the period
of time for which the borrower has received Direct Subsidized Loans
exceeds the aggregate period of enrollment as described in section
455(q)(3) of the HEA.
Current Regulations: There are no existing regulations.
New Regulations: Section 685.200(f)(5) provides that a first-time
borrower who had previously lost eligibility to receive additional
Direct Subsidized Loans may regain eligibility for Direct Subsidized
Loans if the borrower attends an educational program that is longer
than the prior educational program in which the borrower was enrolled.
This provision applies even if the borrower has become responsible for
accruing interest on previously received Direct Subsidized Loans under
Sec. 685.200(f)(3). Example 17 illustrates this regulatory provision:
Example 17: A borrower enrolls in a two-year program and receives
Direct Subsidized Loans for the maximum eligibility period of three
years. The borrower is no longer eligible for further Direct Subsidized
Loans in this program. Then, the borrower enrolls in a four-year
undergraduate program.
*NOTE: CHART OMITTED -- SEE PDF FILE
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The borrower's two-year program had a maximum eligibility period of
three years and the borrower received Direct Subsidized Loans for three
years for that program. Because the borrower had no remaining
eligibility period in that program, the borrower becomes ineligible for
additional Direct Subsidized Loans. However, when the borrower enrolls
in the four-year program the borrower's maximum
[[Page 28966]]
eligibility period is 6 years. Since the borrower has used three years
of eligibility, the borrower now becomes eligible for an additional
three years of Direct Subsidized Loans. Therefore, the borrower has
regained eligibility by enrolling in a program of greater duration than
the borrower's previous program.
Reasons: Section 685.200(f)(5) incorporates the calculations of
section 455(q)(3) of the HEA into the interim final regulations.
Specifically, this regulatory provision provides that a borrower may
regain eligibility for Direct Subsidized Loans if the borrower attends
an educational program longer than the program in which the borrower
was previously enrolled. A borrower enrolling in such a program would
have a new, longer eligibility period and would regain eligibility for
additional Direct Subsidized Loans.
Failing to allow a borrower to regain eligibility in this manner
would result in inequitable treatment of similarly situated borrowers.
For example, if enrolling in a new, longer educational program did not
expand a borrower's maximum eligibility period, students enrolling in
two different programs would have significantly reduced Direct
Subsidized Loan eligibility compared to borrowers who only enrolled in
the longer program. Suppose a borrower is enrolled in a two-year
program and receives Direct Subsidized Loans for three years. If the
borrower then transfers to a four-year program and if the borrower's
maximum eligibility period were not adjusted to six years, then the
borrower would not be eligible for any additional Direct Subsidized
Loans. In contrast, a borrower who had been enrolled in the four-year
program from the beginning and who had also received Direct Subsidized
Loans for three years would have three years of eligibility remaining.
Therefore, to provide equal treatment to these and similar borrowers,
under these interim final regulations, borrowers who attend programs of
greater duration can regain eligibility for Direct Subsidized Loans.
Treatment of Preparatory Coursework Required for Enrollment in a Degree
or Certificate Program (Sec. 685.200(f)(6))
Statute: MAP-21 added section 455(q)(3)(B) to the HEA. This section
directs the Secretary to specify in regulation how the 150 percent
limit on Direct Subsidized Loans applies to students who are enrolled
in coursework necessary for admission into a degree or certificate
program. Section 484(b)(3)(B) of the HEA authorizes an otherwise-
eligible student to receive a Direct Loan for one 12-month period in a
course of study necessary for enrollment in a degree or certificate
program.
Current Regulations: Current 34 CFR 668.32(a)(1)(ii) reflects the
requirements of section 484(b)(3)(B) of the HEA. Section 685.203(a)(6)
provides that, for one 12-month period, a student may receive a Direct
Loan up to an annual loan limit of $2,625 for coursework necessary for
enrollment in an undergraduate degree or certificate program, and up to
an annual loan limit of $5,500 for coursework necessary for a graduate
or professional degree or certificate program. There are no current
regulations that address the application of the 150 percent Direct
Subsidized Loan limit on borrowers enrolled in coursework necessary for
a graduate or professional program.
New Regulations: The interim final regulations provide that the
provisions of Sec. 685.200(f), which govern the 150 percent limit on
Direct Subsidized Loan eligibility, do not supersede the existing 12-
month maximum period of loan eligibility limitation imposed by Sec.
668.32(a)(1)(ii). Section 685.200(f)(6) of the interim final
regulations establishes rules for determining the eligibility for
Direct Subsidized Loans received for preparatory coursework necessary
for enrollment in undergraduate or graduate or professional programs.
Section 685.200(f)(6) treats coursework required for an undergraduate
degree or certificate program differently than coursework required for
a graduate or professional program. However, Sec. 685.200(f)(6)(i)
specifies that Direct Subsidized Loans received for either type of
preparatory coursework are included in the calculation of a borrower's
subsidized usage period.
Section 685.200(f)(6)(ii) provides that the maximum eligibility
period for Direct Subsidized Loans for students completing preparatory
coursework required for enrollment in an undergraduate program is the
maximum eligibility period applicable to the undergraduate program for
which the preparatory coursework is required. Enrollment in preparatory
coursework does not increase the borrower's maximum eligibility period.
Furthermore, Sec. 685.200(f)(6)(iv) provides that for undergraduate
preparatory coursework, the borrower becomes responsible for accruing
interest if the borrower has no remaining eligibility period in the
program for which the coursework is required. This occurs if the
maximum eligibility period of the undergraduate program for which the
preparatory coursework is required is less than the sum of the
borrower's subsidized usage periods based on the borrower's prior
enrollment in one or more educational programs.
Section 685.200(f)(6)(iii) provides that the maximum eligibility
period for preparatory coursework required for enrollment in a graduate
or professional program is the maximum eligibility period for the
undergraduate program for which the borrower most recently received a
Direct Subsidized Loan. A borrower with no remaining eligibility period
based on the maximum eligibility period for that undergraduate program
may not receive Direct Subsidized Loans to complete the required
coursework; however, the borrower may receive Direct Unsubsidized
Loans.
Section 685.200(f)(6)(v) provides that enrollment in preparatory
coursework required for enrollment in a graduate or professional
program does not result in the borrower becoming responsible for
accruing interest on previously received Direct Subsidized Loans.
Examples 18 through 22 illustrate the regulatory treatment of
preparatory coursework:
Example 18: A borrower enrolls in preparatory coursework required
for enrollment in an undergraduate program and receives Direct
Subsidized Loans for one year. The borrower then enrolls in a four-year
degree program for which the preparatory coursework was required.
*NOTE: CHART OMITTED -- SEE PDF FILE
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Under Sec. 685.200(f)(6)(ii), the borrower's maximum eligibility
period is calculated as 150 percent of the four-year program, which
results in a maximum eligibility period of six years. The borrower
received Direct Subsidized Loans for one year of preparatory
coursework; under Sec. 685.200(f)(6)(i), this period counts toward the
borrower's maximum eligibility period for the four-year program for
which the preparatory coursework was required. The difference between
the maximum eligibility period (six years) and the sum of the
borrower's subsidized usage periods from the preparatory coursework
(one year) results in a remaining eligibility period of five years for
the four-year program.
Example 19: A borrower enrolls in preparatory coursework for
enrollment in a two-year undergraduate program and receives Direct
Subsidized Loans for one year. The borrower then enrolls in the two-
year undergraduate program for which the preparatory coursework
[[Page 28967]]
was required and receives Direct Subsidized Loans for two years. The
borrower then enrolls in a four-year program.
*NOTE: CHART OMITTED -- SEE PDF FILE
-------------------------------------------------------------------------
When the borrower enrolled in the preparatory coursework, the
borrower's maximum eligibility period under Sec. 685.200(f)(6)(ii) was
the maximum eligibility period for the two-year program for which the
coursework is required, or three years. The borrower received Direct
Subsidized Loans for one year of preparatory coursework and had two
years of eligibility remaining. The borrower then enrolled in the two-
year program. The borrower received Direct Subsidized Loans for two
years and, after two years, had no remaining eligibility for Direct
Subsidized Loans. When the borrower enrolls in the four-year program,
the borrower's maximum eligibility period under Sec. 685.200(f)(1)(ii)
is calculated as 150 percent of the four-year program, or six years.
Under Sec. Sec. 685.200(f)(1)(iii) and 685.200(f)(6)(i), the period in
which the borrower previously received Direct Subsidized Loans,
including the loan received for the preparatory coursework, count
against the borrower's new six-year maximum eligibility period. The sum
of the borrower's subsidized usage periods upon enrollment in the four-
year program is three years. The borrower has three years of Direct
Subsidized Loan eligibility remaining--the difference between six years
and three years.
Example 20: A borrower enrolls in a two-year program and receives
Direct Subsidized Loans for the maximum eligibility period of three
years. The borrower withdraws and wants to enroll in another two-year
program, but is required to complete preparatory coursework for
enrollment in that program.
*NOTE: CHART OMITTED -- SEE PDF FILE
------------------------------------------------------------------------
When the borrower enrolled in the initial two-year program, the
borrower's maximum eligibility period was three years. The borrower
received Direct Subsidized Loans for the three-year maximum eligibility
period. The borrower wants to enroll in another two-year program but is
required to complete preparatory coursework for admission to that
program. Under Sec. 685.200(f)(6)(ii), the borrower's maximum
eligibility period for the preparatory coursework is three years--the
maximum eligibility period for the new two-year program. Upon
enrollment in the preparatory coursework for the new two-year program,
the borrower does not have any remaining eligibility period because the
borrower has already received Direct Subsidized Loans for three years.
In addition, under Sec. 685.200(f)(6)(iv), enrollment in the
undergraduate preparatory coursework causes the borrower to become
responsible for accruing interest on all of the borrower's previously
received Direct Subsidized Loans, because the borrower has no remaining
eligibility period. Finally, Sec. 685.200(f)(3)(iv) does not apply
because the borrower did not complete the initial two-year program.
Example 21: A borrower enrolls in a four-year undergraduate program
and receives Direct Subsidized Loans for five years. The borrower wants
to enroll in a graduate degree program, but is required to complete
preparatory coursework for enrollment in that program.
*NOTE: CHART OMITTED -- SEE PDF FILE
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Under Sec. 685.200(f)(1)(ii), the borrower's maximum eligibility
period for the four-year program is six academic years (150 percent of
the four-year undergraduate program). The borrower received Direct
Subsidized Loans for five years. Under Sec. 685.200(f)(6)(iii), the
borrower's eligibility for Direct Subsidized Loans for preparatory
coursework necessary for enrollment in a graduate program is based on
the borrower's most recent undergraduate program of study in which the
borrower received a Direct Subsidized Loan. The borrower has a
remaining eligibility period of one academic year based on the six
academic year maximum eligibility period for the prior undergraduate
program, but Sec. 668.32(a)(1)(ii) limits loan eligibility for
preparatory coursework to one consecutive 12-calendar month period. The
borrower therefore has a remaining eligibility period of one academic
year, but must use that eligibility during one consecutive 12 calendar
month period.
Example 22: A borrower enrolls in a four-year undergraduate program
and receives Direct Subsidized Loans for the maximum eligibility period
of six years. The borrower wants to enroll in a graduate program, but
is required to complete preparatory coursework for enrollment in that
program.
*NOTE: CHART OMITTED -- SEE PDF FILE
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Under Sec. 685.200(f)(1)(ii), the borrower's maximum eligibility
period for the four-year program is six years. The borrower received
Direct Subsidized Loans for the maximum eligibility period of six
years. Under Sec. 685.200(f)(6)(iii), the borrower's eligibility for
Direct Subsidized Loans for preparatory coursework for enrollment in a
graduate program is based on the borrower's most recent undergraduate
program of study in which the borrower received a Direct Subsidized
Loan. In this case, the borrower used the six years of maximum
eligibility for the four-year undergraduate program and has no
remaining eligibility period in the preparatory coursework necessary
for enrollment in the graduate program. Although the borrower has lost
eligibility for Direct Subsidized Loans, Sec. 685.200(f)(6)(v)
provides that the borrower's enrollment in the preparatory coursework
does not result in the borrower becoming responsible for accruing
interest on the borrower's previously received Direct Subsidized Loans.
Reasons: Section 685.200(f)(6) of the interim final regulations
implements section 455(q)(3)(B)(ii) of the HEA, which requires the
Secretary to promulgate regulations that address how the 150 percent
limitations apply to borrowers enrolled in coursework necessary for
enrollment in an eligible undergraduate program or a graduate or
professional program.
We chose to treat Direct Subsidized Loans received for preparatory
coursework as part of the borrower's related undergraduate program for
purposes of the 150 percent limit. This approach is consistent with the
statutory goal of creating an incentive for borrowers to complete their
programs in a timely manner. We also believe the maximum eligibility
period calculated under the 150 percent limit will generally allow
borrowers to receive Direct Subsidized Loans while completing 12
calendar months of preparatory coursework and the undergraduate program
for which the preparatory coursework is intended. Furthermore,
borrowers in such preparatory coursework that are ineligible for
further Direct Subsidized Loans would still be eligible for Direct
Unsubsidized Loans to complete their preparatory coursework.
The interim final regulations treat preparatory coursework for
enrollment in a graduate or professional program differently than
coursework required for an undergraduate program. Section
685.200(f)(6)(iii) limits a borrower's Direct Subsidized Loan
eligibility for graduate or professional preparatory coursework to the
maximum eligibility period applicable to the undergraduate program for
which the borrower most recently received a Direct Subsidized Loan.
We chose this approach because preparatory coursework for graduate
or professional programs is considered baccalaureate in nature for
Direct Loan purposes and is therefore subject to undergraduate loan
limits under current Sec. 685.203. Such coursework is also limited to
one 12-calendar month period and is a series of specified courses
required for admission to a program rather than a stand-alone program
of study. An alternative we considered was to treat this coursework as
a one-year stand-alone program; however, we rejected this approach
because it would cause all borrowers with subsidized usage periods of
1.5 years or more from their prior undergraduate enrollment to become
ineligible for Direct Subsidized Loans to complete this preparatory
coursework (see example 13 and discussion in the related reasons
section).
In addition to addressing borrower eligibility for Direct
Subsidized Loans during preparatory coursework, the interim final
regulations also address the possibility that a borrower will become
responsible for accruing interest that could result from enrollment in
such coursework after a borrower reaches the 150 percent limit and is
no longer eligible for additional Direct Subsidized Loans. For
enrollment in preparatory coursework necessary for enrollment in an
undergraduate program, Sec. 685.200(f)(6)(iv) provides that a borrower
would become responsible for accruing interest only if the borrower had
no remaining eligibility period in the program for which the coursework
is required. We believe that this provision will be inapplicable to
most borrowers because borrowers rarely enroll in preparatory
coursework for an undergraduate program after having already received a
significant number of Direct Subsidized Loans. In addition, such
borrowers will ultimately become responsible for accruing interest by
enrolling in the undergraduate program for which the preparatory
coursework is required. Therefore, preventing borrower responsibility
for accruing interest during the related preparatory coursework would
only delay borrower responsibility for accruing interest for a short
period.
In contrast, under Sec. 685.200(f)(6)(v), a borrower's enrollment
in preparatory coursework required for a graduate or professional
program does not result in the borrower becoming responsible for
accruing interest on previously received loans. Borrowers enrolling in
graduate or professional preparatory coursework often have borrowed
Direct Subsidized Loans during undergraduate programs. Borrower
responsibility for accruing interest caused by enrollment in such
preparatory coursework could have a significant impact on borrowers who
then enroll in a graduate or professional program--such borrowers would
be responsible for interest that accrues during all the years of the
graduate or professional program. If this were to occur, the costs of
borrowing for graduate or professional programs would increase
significantly. For example, suppose a borrower with no remaining
eligibility period and $23,000 in Direct Subsidized Loan principal (the
aggregate loan limit) enrolled in one year of preparatory coursework
for a two-year master's degree program. Assuming an interest rate of
6.8% on the borrower's loans, the borrower would be responsible for
more than $5,000 in capitalized interest that accrued during those
three years of enrollment. Without Sec. 685.200(f)(6)(v), we believe
such increased costs of borrowing could deter borrowers who require
preparatory coursework from pursuing graduate- or professional-level
study.
Furthermore, without Sec. 685.200(f)(6)(v), borrowers who require
preparatory coursework for graduate or professional programs would
otherwise be treated inequitably compared to those who do not need such
preparatory coursework. Because enrollment in graduate and professional
programs does not result in borrower responsibility for accruing
interest, without Sec. 685.200(f)(6)(v), borrowers who need such
preparatory coursework would become responsible for accruing interest
while those who do not need preparatory coursework would not. This
would result in significantly divergent and inequitable principal
balances at the conclusion of the graduate or professional coursework.
For these
[[Page 28969]]
reasons, the interim final regulations prevent enrollment in such
preparatory coursework from resulting in borrower responsibility for
accruing interest.
Treatment of Teacher Certification Coursework for Which the Institution
Awards No Academic Credential (Sec. 685.200(f)(7))
Statute: MAP-21 added section 455(q)(3)(B) to the HEA. This section
directs the Secretary to specify in regulations how the 150 percent
Direct Subsidized Loan eligibility limit will apply to borrowers at an
eligible institution who are enrolled in coursework required for a
professional State credential or certification necessary for employment
as an elementary or secondary school teacher, but for which the
institution awards no academic credential. Section 484(b)(4) of the HEA
authorizes a student to receive Title IV student loans for such
coursework.
Current Regulations: Current 34 CFR 668.32(a)(1)(iii) reflects
section 484(b)(4) of the HEA, which provides that students are eligible
for Direct Loans if they are enrolled in teacher certification
coursework that does not lead to an academic credential awarded by an
institution, but which is required for certification by the State to
teach in an elementary or secondary school. Current Sec. 685.203(a)(7)
provides that a student may receive up to an annual Direct Subsidized
Loan limit of $5,500 for such coursework. There are no current
regulations that specify the treatment of students enrolled in teacher
certification coursework for purposes of the 150 percent Direct
Subsidized Loan limit. (Throughout the preamble to this interim final
regulation, any reference to ``teacher certification coursework'' only
includes teacher certification coursework for which the institution
awards no academic credential, unless otherwise specified.)
New Regulations: Section 685.200(f)(7)(i) of the regulations
provides that the maximum eligibility period for a first-time borrower
enrolled in teacher certification coursework is calculated as 150
percent of the published length of the teacher certification coursework
in which the borrower is currently enrolled.
Section 685.200(f)(7)(ii) provides that, when determining a
borrower's remaining eligibility period for teacher certification
coursework, only periods in which a borrower received Direct Subsidized
Loans for such teacher certification coursework are included in the
borrower's subsidized usage period.
Section 685.200(f)(7)(iii) provides that, when determining a
borrower's remaining eligibility period for any program or coursework
other than teacher certification coursework, periods in which a
borrower received Direct Subsidized Loans for such teacher
certification coursework are excluded.
Together, these latter two paragraphs provide that we treat the sum
of the borrower's subsidized usage periods accrued during teacher
certification coursework separately from the borrower's subsidized
usage periods accrued during all other undergraduate programs or
coursework in which the borrower may have enrolled. Direct Subsidized
Loans received for teacher certification coursework count only against
the maximum eligibility period for the borrower's teacher certification
coursework.
Finally, Sec. 685.200(f)(7)(iv) provides that enrollment in
teacher certification coursework for which an academic credential is
not awarded by the institution does not cause a borrower to become
responsible for accruing interest on the borrower's outstanding Direct
Subsidized Loans, including any Direct Subsidized Loans received for
periods of undergraduate study.
The provisions of Sec. 685.200(f)(7) cover teacher certification
coursework for which an institution does not award an academic
credential. Teacher preparation programs for which an institution
awards an academic credential are governed by Sec. 685.200(f)(1)-
(f)(6), similar to other undergraduate or graduate programs.
Examples 23 through 25 illustrate the treatment of borrowers
enrolled in teacher certification coursework.
Example 23: A borrower completes a four-year baccalaureate degree
program and receives four years of Direct Subsidized Loans for that
program. The borrower then enrolls in teacher certification coursework
that is one year in duration.
*NOTE: CHART OMITTED -- SEE PDF FILE
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The borrower received Direct Subsidized Loans for four years before
enrolling in the teacher certification coursework. When the borrower
enrolls in the one year of teacher certification coursework, the
calculation of the borrower's maximum eligibility period, subsidized
usage period, and remaining eligibility period are unaffected by the
borrower's prior enrollment or borrowing. The borrower therefore has
1.5 years of eligibility for Direct Subsidized Loans remaining.
Example 24: A borrower enrolls in one year of teacher certification
coursework and receives Direct Subsidized Loans for one year. The
borrower then enrolls in separate teacher certification coursework for
two years.
*NOTE: CHART OMITTED -- SEE PDF FILE
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The borrower received Direct Subsidized Loans for one year of
teacher certification coursework, and has a remaining eligibility
period of 0.5 years after the first year. When the borrower enrolls in
the separate two years of teacher certification coursework, the
borrower's maximum eligibility period is three years (150 percent of
the two years of coursework), but the borrower's previous subsidized
usage period of one year counts against the borrower's new maximum
eligibility period. Therefore, the borrower has a remaining eligibility
period of two years.
Example 25: A borrower enrolls in a two-year undergraduate degree
program and receives Direct Subsidized Loans for three years. The
borrower then enrolls in two years of teacher certification coursework,
receives Direct Subsidized Loans for three years, and is therefore not
eligible for more Direct Subsidized Loans. The borrower continues
enrollment in the teacher certification coursework.
*NOTE: CHART OMITTED -- SEE PDF FILE
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[[Page 28970]]
After completing the two-year undergraduate program, the borrower
enrolled in two years of teacher certification coursework and received
Direct Subsidized Loans for three years. When the borrower enrolled in
the teacher certification coursework, the borrower's maximum
eligibility period and remaining eligibility period were both three
years because the borrower's previous undergraduate borrowing does not
count against the teacher certification maximum eligibility period. The
borrower subsequently used all three years of Direct Subsidized Loan
eligibility for the teacher certification coursework and therefore has
no remaining eligibility period for Direct Subsidized Loans in the
teacher certification coursework. When the borrower continues
enrollment in the teacher certification coursework, this does not
result in the borrower becoming responsible for accruing interest on
his or her existing Direct Subsidized Loans, either those received for
the undergraduate degree program or those received for the teacher
certification coursework.
Reasons: Section 685.200(f)(7) implements section 455(q)(3)(B)(ii)
of the HEA, which requires the Secretary to promulgate regulations that
address how the 150 percent Direct Subsidized Loan eligibility
limitations apply to borrowers enrolled in teacher certification
coursework for which the institution awards no academic credential. The
interim final regulations reflect the unique characteristics of this
coursework within the general requirements of section 455(q)(3)(A) of
the HEA.
We chose to calculate the 150 percent subsidized limit for teacher
certification coursework in a manner similar to the approach used to
calculate the limit for undergraduate degree programs. However, in
calculating the remaining eligibility period, we chose to exclude
Direct Subsidized Loans borrowed for earlier undergraduate programs.
Borrowers enrolled in teacher certification coursework required for
licensure or certification have already completed baccalaureate degree
programs for which they may have received numerous Direct Subsidized
Loans. Because this teacher certification coursework is typically one
or two years in duration, counting earlier undergraduate loans would
likely cause numerous borrowers to lose eligibility for further Direct
Subsidized Loans and to become responsible for accruing interest upon
enrollment (see example 13). This may discourage students from pursuing
education to become teachers. Therefore, we chose to treat borrowing
and enrollment in this coursework separately from the borrowing and
enrollment in undergraduate programs.
The Secretary believes that individuals should be encouraged to
become teachers and to continue teaching. The Secretary also believes
that teacher certification coursework is an important national resource
for teacher preparation and continued professional development.
Treating borrowing during teacher certification coursework separately
for purposes of the 150 percent limit preserves sufficient Direct
Subsidized Loan eligibility for most borrowers who have financial need
while preventing such borrowers from having unlimited Direct Subsidized
Loan eligibility for teacher certification coursework. Allowing
unlimited eligibility for such coursework would be contrary to the
intent of MAP-21, which established a time limit on eligibility for
Direct Subsidized Loans and we believe was intended to provide
incentives for timely completion.
In addition to treating Direct Subsidized Loans borrowed for
teacher certification coursework as separate from prior undergraduate
Direct Subsidized Loan borrowing, Sec. 685.200(f)(7)(iv) also provides
that a borrower will not be responsible for accruing interest on prior
loans based on subsequent enrollment in teacher certification
coursework. Many States have certification standards that require
teachers to take teacher certification coursework to continue teaching
in the State. For these teachers, enrollment in this coursework is
legally required for continued employment, not an option that a
borrower can exercise. Therefore, we have determined that enrollment in
this coursework should not result in the borrower becoming responsible
for accruing interest on all of the borrower's outstanding loans.
New Entrance and Exit Counseling Requirements (Sec.
685.304(a)(6)(xiii), Sec. 685.304(b)(4)(xii))
Statute: Section 485(l) of the HEA requires an eligible institution
to provide entrance counseling to first-time borrowers at or prior to
disbursement of a Direct Subsidized Loan or a Direct Unsubsidized Loan.
The counseling may be provided in person, on a separate written form
provided to and signed and returned by the borrower, or online with the
borrower acknowledging receipt. The entrance counseling must include:
Information on the terms and conditions of the loan;
The borrower's responsibilities under the loan;
The effects of the loan on other student aid eligibility;
An explanation of the use of the master promissory note;
An explanation of interest accrual and capitalization;
The borrower's option to pay the accruing interest while
in school;
The consequences of not maintaining half-time enrollment;
The borrower's responsibility to contact the institution
if the borrower withdraws;
Sample monthly repayment amounts;
Information on the National Student Loan Data System
(NSLDS);
The borrower's obligation to repay the loan regardless of
program completion or completion within the regular timeframe for
completion;
The consequences of default; and
The name and contact information for a person the borrower
may contact if the borrower has any questions.
Section 485(b) of the HEA requires eligible institutions to provide
exit counseling to Direct Subsidized Loan or Direct Unsubsidized Loan
borrowers prior to the borrower completing the course of study or at
the time the borrower departs from, or drops below half-time enrollment
at, the institution. The exit counseling must provide:
Information on the available repayment plans and their
features;
Debt management strategies to facilitate loan repayment;
Loan forgiveness and cancellation provisions with a
description of their terms and conditions;
Forbearance provisions and their terms and conditions;
The consequences of default;
The effects of loan consolidation;
The types of tax benefits that may be available; and
The availability of NSLDS and how it can be used by
borrowers to access their records and obtain information on the
repayment status of their loans.
Current Regulations: Current Sec. 685.304(a)(6) and (b)(4) of the
Department's regulations reflect the borrower entrance and exit
counseling requirements contained in the HEA. The information that
institutions are required to provide to borrowers during entrance and
exit counseling does not currently include information on the Direct
Subsidized Loan eligibility limits and the potential borrower
responsibility for accruing interest.
New Regulations: The regulations governing entrance and exit
counseling requirements are being amended to require that institutions
inform borrowers of the 150 percent Direct Subsidized Loan eligibility
limitations
[[Page 28971]]
and possible borrower responsibility for accruing interest.
We have added Sec. 685.304(a)(6)(xiii) of the Direct Loan
regulations to require that the information provided as part of
entrance counseling include:
The possible loss of eligibility for additional Direct
Subsidized Loans;
How a borrower's maximum eligibility period, remaining
eligibility period, and subsidized usage period are determined;
The potential for a borrower becoming responsible for all
accruing interest on Direct Subsidized Loans during in-school periods,
grace periods, and periods of authorized deferment; and
The impact of borrower responsibility for accruing
interest on the borrower's total debt.
We have also amended Sec. 685.304(b)(4)(xii) of the Direct Loan
regulations governing required exit counseling to require, in addition
to the information required as part of entrance counseling, that
information be provided to the borrower on:
The sum of the borrower's subsidized usage periods at the
time of the exit counseling;
How to get information from NSLDS on whether he or she has
become responsible for accruing interest on any of his or her Direct
Subsidized Loans and whether the borrower is eligible to receive
additional Direct Subsidized Loans;
The possible consequences of receiving additional Direct
Subsidized Loans for additional undergraduate programs; and
The potential for a borrower becoming responsible for all
accruing interest on Direct Subsidized Loans during in-school periods,
grace periods, and periods of authorized deferment, even if the
borrower does not receive an additional Direct Subsidized Loan.
We will modify our entrance counseling material prior to July 1 to
reflect the additional information that must be provided to borrowers
under new Sec. 685.304(a)(6)(xiii). We will also modify our exit
counseling material to reflect the additional information that must be
provided to borrowers under new Sec. 685.304(b)(4)(xii). Institutions
may continue to rely on the Department's revised counseling materials
to comply with these revised regulatory requirements. The Department
will post an electronic announcement on the Information for Financial
Aid Professionals Web site when revised counseling materials are
available.
Reasons: The amendments made to the HEA by MAP-21 significantly
alter borrower eligibility requirements for Direct Subsidized Loans for
first-time borrowers on or after July 1, 2013. The amendments also make
changes to the terms and conditions of those loans. It is critical that
institutions communicate information on these important changes to
borrowers as part of their entrance and exit counseling. Without this
information, borrowers could be affected by the 150 percent limit
without knowing about the limit, without understanding how it is
calculated, and without understanding the significant financial
implications for them if they reach or exceed the limit. Therefore, we
have added this information to the information that institutions must
provide during entrance and exit counseling. Enhanced counseling about
these requirements will mitigate borrower confusion, encourage accurate
budgeting and debt management by borrowers, and help borrowers make
informed educational plans mindful of all potential costs.
Additional Reporting Requirements and Modifications to Departmental
Systems
To effectively implement the regulatory provisions contained in
these interim final regulations, the Department will make a number of
changes to NSLDS and to the Common Origination and Disbursement (COD)
System. The COD System will collect information needed to determine
whether a borrower continues to be eligible for Direct Subsidized
Loans; NSLDS will collect information needed to determine whether a
borrower becomes responsible for the accruing interest on the Direct
Subsidized Loans the borrower previously received. Institutions will
not be responsible for officially determining whether a borrower has a
remaining eligibility period under these interim final regulations. The
Department will have the primary responsibility for making eligibility
determinations, determining whether a borrower becomes responsible for
accruing interest, and making this information available to borrowers.
In the event that there are questions regarding the validity of any
determination made by the Department with respect to these provisions,
we will develop a process to research data integrity issues, and, if
necessary, adjust previously made determinations. However, institutions
will be required to report additional information to both the COD
System and NSLDS, as discussed below. We are committed to making the
necessary systems changes as quickly as possible and will issue further
guidance at a later date.
The 150 percent limit only applies to borrowers who are ``first-
time borrowers'' on or after July 1, 2013. The Secretary will have the
information necessary to determine whether a borrower is a first-time
borrower as defined in Sec. 685.200(f)(1)(i). Institutions will not be
required to determine or report this information. However, institutions
will be required to supply the information below for all borrowers who
receive Direct Loans on or after the date that we implement the system
changes necessary to support these interim final regulations.
To allow the Department to calculate a borrower's maximum
eligibility period, institutions will be required to report additional
information to the COD System when originating and disbursing Direct
Loans. The additional information will include, but not be limited to:
The Classification of Instructional Programs (CIP) Code
for the program in which the borrower is enrolled;
The credential level for the borrower's program;
The length of the borrower's program (in academic years,
months, or weeks);
The enrollment status of the borrower at the time the loan
is disbursed (full time, half time, or three-quarter time);
If appropriate, an indication that the Direct Loan is
intended for preparatory coursework for an undergraduate program;
If appropriate, an indication that the Direct Loan is
intended for preparatory coursework for a graduate or professional
program; and
If appropriate, an indication that the Direct Loan is
intended for teacher certification coursework for which the institution
does not award an academic credential.
Note: An enrollment status of less than half time will not be
included in the COD System because a borrower is not eligible to
receive a Direct Loan for enrollment on a less than half-time basis
(this information will continue to be included in NSLDS, however).
We will use the CIP Code, credential level, and program length to
define the program in which the borrower is enrolled. We need this
information because section 455(q) of the HEA and these implementing
regulations require that the borrower's maximum eligibility period be
determined program by program.
We are requiring that institutions report the borrower's enrollment
status as of the date that the loan is disbursed, as full time, three-
quarter time, or half time because the Secretary generally
[[Page 28972]]
prorates the subsidized usage period in cases where the borrower is
enrolled less than full time.
Finally, institutions must identify Direct Loans that are intended
to support preparatory coursework for undergraduate programs,
preparatory coursework for graduate or professional programs, and
teacher certification coursework because the interim final regulations
treat loans for such coursework differently than loans for other
programs.
To calculate the borrower's subsidized usage period, the COD System
will divide the number of days in each loan period by the number of
days in the academic year associated with the loan, as reported by the
institution in the award record for the loan. An institution's failure
to report this information accurately will not only cause borrowers to
appear to have less eligibility for Direct Subsidized Loans than they
should but may also cause disbursement records to be rejected by the
COD System or result in adverse findings in compliance reviews of the
institution, fines, or other sanctions.
By comparing the sum of the borrower's subsidized usage periods to
the borrower's maximum eligibility period, the COD System will reject
any disbursement record of a Direct Subsidized Loan if the borrower has
lost eligibility for Direct Subsidized Loans as a result of new Sec.
685.200(f)(2).
The COD System will track and calculate a borrower's maximum
eligibility period, subsidized usage period, and remaining eligibility
period, and the Secretary will provide borrowers and institutions with
information about the borrower's subsidized usage periods using Student
Aid Reports (SARs) and Institutional Student Information Records
(ISIRs) through the Central Processing System (CPS). This will allow
institutions to counsel Direct Loan borrowers about their maximum
eligibility periods and remaining eligibility periods based on the
length of the program in which the borrower is enrolled. This
information will also allow institutions to determine whether the
borrower has any Direct Subsidized Loan eligibility remaining before
submitting an origination or disbursement record to the COD System.
In addition to the additional reporting to the COD System,
institutions will be required to report additional information to NSLDS
as part of their reporting of enrollment information on student loan
borrowers. The Department requires this additional information to
implement the requirements concerning borrowers' responsibility for
accruing interest. The additional information will include, but not be
limited to:
The CIP Code and credential level for the program in which
the borrower is enrolled;
The length of the program in which the borrower is
enrolled in academic years, months, or weeks (consistent with
institutional reporting in the COD System);
The enrollment status of the borrower at the time the
institution completes the enrollment reporting;
If appropriate, an indication that the borrower is
enrolled in preparatory coursework for an undergraduate program;
If appropriate, an indication that the borrower is
enrolled in preparatory coursework for a graduate or professional
program; and
If appropriate, an indication that the borrower is
enrolled in teacher certification coursework for which the institution
does not award an academic credential.
The Secretary will use the information regarding CIP Code,
credential level, and program length to define the program in which the
borrower is enrolled (e.g., as a graduate program or an undergraduate
program) and to calculate the appropriate 150 percent limit.
The Secretary will also use the information about the length of the
borrower's current program to ensure that borrowers do not improperly
become responsible for accruing interest.
Finally, the Secretary will use information that institutions are
already required to report concerning a student's graduation to
determine whether a borrower will not become responsible for accruing
interest under Sec. 685.200(f)(3)(iv) because the borrower completed
his or her program in a timely manner.
The Secretary is requiring that institutions flag borrower
enrollment in preparatory coursework and teacher certification
coursework because of the special rules that apply to borrowers
enrolled in those programs.
We will use this information in NSLDS to determine whether a
borrower becomes responsible for accruing interest on his or her Direct
Subsidized Loans (and the effective date on which the borrower becomes
responsible for that interest). This information will be conveyed to
the borrower's Federal loan servicer, which will notify the borrower
that he or she is responsible for accruing interest. The servicer will
also make the necessary adjustments to reflect the borrower's
responsibility for accruing interest on the borrower's Direct
Subsidized Loans.
The Department will modify its entrance and exit counseling
material on StudentLoans.gov to provide the information described in
new Sec. Sec. 685.304(a)(6)(xiii) and 685.304(b)(4)(xii) for
institutions that use the Department's online counseling material to
comply with the regulatory entrance and exit counseling requirements.
Executive Orders 12866 and 13563
Regulatory Impact Analysis
Under Executive Order 12866, the Secretary must determine whether
this regulatory action is ``significant'' and, therefore, subject to
the requirements of the Executive order and subject to review by the
Office of Management and Budget (OMB). Section 3(f) of Executive Order
12866 defines a ``significant regulatory action'' as an action likely
to result in a rule that may--
(1) Have an annual effect on the economy of $100 million or more,
or adversely affect a sector of the economy, productivity, competition,
jobs, the environment, public health or safety, or State, local, or
tribal governments or communities in a material way (also referred to
as an ``economically significant'' rule);
(2) Create serious inconsistency or otherwise interfere with an
action taken or planned by another agency;
(3) Materially alter the budgetary impacts of entitlement grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or
(4) Raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles stated in the
Executive Order.
This regulatory action would have an annual effect on the economy
of more than $100 million because the transfers between borrowers who
exceed the 150 percent limit and the government total approximately
$3.9 billion over loan cohorts 2013 to 2023. Therefore, this action is
``economically significant'' and subject to review by OMB under section
3(f)(1) of Executive Order 12866. Notwithstanding this determination,
we have assessed the potential costs and benefits, both quantitative
and qualitative, of this regulatory action and have determined that the
benefits justify the costs.
We have also reviewed these interim final regulations under
Executive Order 13563, which supplements and explicitly reaffirms the
principles, structures, and definitions governing regulatory review
established in Executive Order 12866. To the extent
[[Page 28973]]
permitted by law, Executive Order 13563 requires that an agency--
(1) Propose or adopt regulations only upon a reasoned determination
that their benefits justify their costs (recognizing that some benefits
and costs are difficult to quantify);
(2) Tailor its regulations to impose the least burden on society,
consistent with obtaining regulatory objectives and taking into
account--among other things and to the extent practicable--the costs of
cumulative regulations;
(3) In choosing among alternative regulatory approaches, select
those approaches that maximize net benefits (including potential
economic, environmental, public health and safety, and other
advantages, distributive impacts, and equity);
(4) To the extent feasible, specify performance objectives, rather
than the behavior or manner of compliance a regulated entity must
adopt; and
(5) Identify and assess available alternatives to direct
regulation, including economic incentives--such as user fees or
marketable permits--to encourage the desired behavior, or provide
information that enables the public to make choices.
Executive Order 13563 also requires an agency ``to use the best
available techniques to quantify anticipated present and future
benefits and costs as accurately as possible.'' The Office of
Information and Regulatory Affairs of OMB has emphasized that these
techniques may include ``identifying changing future compliance costs
that might result from technological innovation or anticipated
behavioral changes.''
We are issuing these interim final regulations only on a reasoned
determination that their benefits justify their costs. In choosing
among alternative regulatory approaches, we selected those approaches
that maximize net benefits. Based on the analysis that follows, the
Department believes that these regulations are consistent with the
principles in Executive Order 13563.
We also have determined that this regulatory action would not
unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.
In this regulatory impact analysis we discuss the need for
regulatory action, the potential costs and benefits, net budget
impacts, assumptions, limitations, and data sources, as well as
regulatory alternatives we considered.
1. Potential costs and benefits
These interim final regulations implement the statutory
requirements in MAP-21 that limit the availability of Direct Subsidized
Loans to 150 percent of the program length and that cause borrowers to
become responsible for accruing interest if they are no longer eligible
for Direct Subsidized Loans as a result. The net budget savings that
will be generated by these interim final regulations will contribute to
paying for the extension of the 3.4 percent interest rate on Direct
Subsidized Loans made between July 1, 2012, and June 30, 2013. In the
following sections, we summarize the effects these interim final
regulations are likely to have on the Federal Government, institutions
of higher education (IHEs), and students.
Federal Government: The eligibility limitations and potential
borrower responsibility for accruing interest implemented in these
interim final regulations are expected to result in net budget savings
as some Direct Subsidized Loans shift to Direct Unsubsidized Loans and
as some borrowers become responsible for accruing interest on their
Direct Subsidized Loans earlier than they otherwise would. The
estimated savings associated with the interim final regulations were
initially analyzed as PB 2013 budget policy, and that estimate of
$3.597 billion in savings was included in the Department's mid-session
review (MSR) budget baseline in the summer of 2012, shortly before the
passage of MAP-21. When the specifics of the legislation and interim
final regulations became available, the estimate was updated, using
revised economic assumptions and loan volume, resulting in additional
estimated savings of approximately $325 million.
Consistent with the requirements of the Credit Reform Act of 1990
(CRA), budget cost estimates for the Federal 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. These
estimates were developed using OMB's Credit Subsidy Calculator. The OMB
calculator takes projected future cash flows from the Department's
student loan cost estimation model and produces discounted subsidy
rates reflecting the net present value of all future Federal costs
associated with awards made in a given fiscal year. Values are
calculated using a ``basket of zeros'' methodology under which each
cash flow is discounted using the interest rate of a zero-coupon
Treasury bond with the same maturity as that cash flow. To ensure
comparability across programs, this methodology is incorporated into
the calculator and used Governmentwide to develop estimates of the
Federal cost of credit programs. Accordingly, the Department believes
it is the appropriate methodology to use in developing estimates for
these interim final regulations.
In order to evaluate the effect of these interim final regulations,
the Department used data from NSLDS to simulate a representative pool
of Direct Subsidized Loan borrowers for the upcoming cohorts affected
by the interim final regulations. Based on borrowing patterns in the
NSLDS data for existing cohorts, the Department estimated which
borrowers will lose eligibility for Direct Subsidized Loans and which
borrowers will become responsible for accruing interest. The model
accounted for program length, type, and whether the borrower
transferred from one institution to another to determine the loss of
Direct Subsidized Loan eligibility and borrower responsibility for
accruing interest. The estimated savings were then generated using the
Department's Student Loan Model based on the anticipated shift in loan
volume from Direct Subsidized Loans to Direct Unsubsidized Loans, a
reduction in anticipated deferments, and a reduced number of days for
which the borrower is not responsible for interest that accrues.
Additional information on the effect of these factors is available in
the Students section of this regulatory impact analysis.
Institutions of Higher Education: The interim final regulations
most directly affect the Federal Government and student borrowers, with
a more limited effect on IHEs. While a small percentage of student
borrowers is expected to lose eligibility for additional Direct
Subsidized Loans or to become responsible for accruing interest on
existing Direct Subsidized Loans, those students would still be
eligible for Direct Unsubsidized Loans and would not necessarily
withdraw from their program of study, potentially limiting the effect
of the interim final regulations on an IHE's revenues. While some
Direct Subsidized Loan borrowers may shift their educational plans or
the sources of funding used to pay for their programs, the availability
of substitute sources of funding or other students who would fill the
IHE's capacity could also limit the effect of the interim final
regulations on institutions.
The Paperwork Reduction Act section of this preamble describes the
additional reporting requirements for IHEs related to these interim
final regulations, such as requirements to identify the length of the
programs in which a student borrower is enrolled,
[[Page 28974]]
the borrower's enrollment status, and the type of program. In addition,
IHEs will need to update the financial aid counseling they provide to
student borrowers to reflect the new limitations on Direct Subsidized
Loans and the Department will provide guidance to assist with this
process. The Department estimates that this reporting and financial aid
counseling activity will cost IHEs approximately $1.6 million.
Students: The effect of these interim final regulations on students
is the potential loss of Direct Subsidized Loan eligibility and
responsibility for accruing interest on existing Direct Subsidized
Loans for new borrowers starting on July 1, 2013. The examples
presented in this preamble demonstrate the effect of the changes in a
variety of scenarios under the interim final regulations. While the
specific effects on individual students will depend on many factors
(including the use of Direct Subsidized Loans, transfers between
programs of different published lengths, program completion, or
enrollment in multiple programs), we have analyzed the effects of the
interim final regulations across a simulated pool of borrowers subject
to the regulations.
As discussed, first-time borrowers as of July 1, 2013, will be
subject to the new eligibility limitations. Borrowers who are otherwise
eligible for Direct Subsidized Loans will not be eligible for
additional Direct Subsidized Loans after taking out Direct Subsidized
Loans for a period that equals or exceeds 150 percent of the published
length of their program. The limitation has two parts: (1) The
determination that a borrower has received Direct Subsidized Loans for
a period equal to or greater than 150 percent of the length of the
borrower's program, and (2) once that limit has been reached or
exceeded, the borrower's responsibility for accruing interest on prior
undergraduate loans is triggered by the borrower's further enrollment
in an undergraduate program of equal or shorter duration, except for
borrowers who complete their programs before becoming responsible for
accruing interest. The borrower is responsible for interest that
accrues from the date that he or she becomes responsible for accruing
interest, not from the original disbursement date of the loan. As
described in more detail in the Federal Government section of this
regulatory impact analysis, the Department generated estimates of the
effect of the interim final regulations on the Federal budget and on
student borrowers using a pool of hypothetical borrowers and patterns
of borrowing behavior from NSLDS. Based on NSLDS data, the Department
was able to estimate the percentage of student borrowers in different
categories who would potentially trigger the eligibility limitations
and responsibility for accruing interest under the interim final
regulations. Transfer students and those at two-year programs were most
affected by the interim final regulations. The estimates presented in
Table 2 demonstrate the effect of the interim final regulations by
sector.
*NOTE: CHART OMITTED -- SEE PDF FILE
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Affected borrowers may be subject to different combinations of
limitations depending on their situations. For example, some borrowers
who do not intend to take out additional Direct Subsidized Loans will
still become responsible for accruing interest on existing loans if
they enroll in an undergraduate program after reaching or exceeding the
150 percent limit, except for those borrowers who complete their first
program before becoming responsible for accruing interest. In contrast,
other borrowers may not trigger the eligibility limitations on prior
loans from a two-year program if they later transfer to a four-year
program and become eligible for additional subsidized loans for which
they are otherwise eligible.
To quantify the effect of the interim final regulations on student
borrowers, the Department estimated the number of borrowers in each
cohort who would exceed the 150 percent Direct Subsidized Loan limit.
Because borrowers can have loans in multiple cohorts, Table 3 presents
the estimated percentage and number of borrowers in a particular cohort
year affected by the interim final regulations, not an unduplicated
number of borrowers across all cohort years. The percentage of
borrowers affected increases in later cohorts as the percentage of the
cohort representing first-time borrowers after July 2013 increases. The
percentage of borrowers affected reaches approximately 6.54 percent by
the 2023 cohort when almost all borrowers should be first-time
borrowers who are subject to the interim final regulations. Those
included as affected borrowers, approximately 578,000 by the 2023
cohort, would lose eligibility for future Direct Subsidized Loans and
become responsible for accruing interest.
*NOTE: CHART OMITTED -- SEE PDF FILE
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The Department used this information to estimate the cost of the
loss of Direct Subsidized Loan eligibility and the days for which the
borrower is responsible for accruing interest on existing Direct
Subsidized Loans for individual affected borrowers. While the specific
impact on a given borrower depends on multiple factors, the average
cost to affected borrowers is approximately $843, based on an assumed
interest rate of 6.8 percent.
In addition to the NSLDS-based analysis, the Department also
examined data from the 2004/2009 Beginning Postsecondary Students
Longitudinal Study \2\ (BPS) and analyzed what the impacts would have
been if the interim final regulations had been in place for the 2003
cohort. BPS data show that the average borrower who started in a four-
year program and who was still enrolled in his or her original
undergraduate program with no stops, transfers, or degree after six
years had a little under $14,000 in outstanding subsidized loans.
Overall, the average borrower who was still enrolled after six
consecutive years of undergraduate studies at the same institution with
no degree had just under $24,000 in Direct Subsidized and Unsubsidized
Loans.
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Under these interim final regulations, a borrower who enrolls in a
seventh year of undergraduate studies in a four-year program would
become responsible for accruing interest on Direct Subsidized Loans.
Using the data from Table 5b, if the interim final regulations were in
place, the average borrower would have entered that seventh year with
$13,128 in Direct Subsidized Loans. In that seventh year, in addition
to losing eligibility for additional Direct Subsidized Loans, the
borrower would become responsible for $892.67 of interest (this and
other calculations assume that current law applies--therefore interest
would accrue at a rate of 6.8 percent). This is in addition to interest
accruing on existing Direct Unsubsidized Loans as well as any Direct
Unsubsidized Loans taken out during that seventh year.
Based on data from the 2004/2009 BPS and assuming these interim
final regulations were in place, the average borrower who became
responsible for accruing interest on existing Direct Subsidized Loans
by enrolling in a seventh year of undergraduate studies but did not
take out any additional student loans would have accrued almost $1,800
more in interest during that seventh year of school and the following
grace period (assuming graduation in the seventh year). If the borrower
had taken out an additional loan in the seventh year, he or she would
have been limited to Direct Unsubsidized Loans then and in the future,
and interest would have accrued on all of the borrower's loans. Under a
10-year Standard Repayment Plan, the additional costs for a borrower
who becomes responsible for interest on previously subsidized loans
would be about $20 per month and $2,400 over the life of the borrower's
loans. This estimate does not account for the possibility that the
borrower could request deferments, during which time the borrower would
also be responsible for accruing interest.
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Borrowers who start in two-year programs will have three years of
Direct Subsidized Loan eligibility. However, some borrowers may choose
to transfer to a longer program (e.g., a four-year program) after that
third year and subsequently increase their maximum eligibility for
Direct Subsidized Loans. Data from the 2004/2009 BPS show that the
average borrower who began at a two-year institution in fall 2003 and
was still enrolled without a degree at the end of the 2005-2006
academic year had approximately $4,652 of Direct Subsidized Loan debt.
However, approximately 20 percent of students who began at a two-year
institution in fall 2003 and were still enrolled without a degree at
the end of the 2005-2006 academic year had any subsidized loan debt.
Unlike a borrower in a four-year program who reaches the
eligibility limits, a borrower in a two-year program who has taken out
three years of Direct Subsidized Loans will not become responsible for
interest on existing Direct Subsidized Loans if he or she enrolls in a
longer program instead of enrolling in the fourth year of the two-year
program.
[[Page 28977]]
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The data in Table 8 show that borrowers in two-year programs who
become responsible for interest on Direct Subsidized Loans by enrolling
in a fourth year of that program (but who do not take out an additional
loan) would not experience a significant financial impact during that
fourth year under these interim final regulations. Those who receive an
additional Direct Unsubsidized Loan during the fourth year would
experience a larger impact because the loan received in the fourth year
would be a Direct Unsubsidized Loan and such borrowers would be
responsible for accruing interest on all loans, including Direct
Subsidized Loans.
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As mentioned earlier, some borrowers who begin in two-year programs
will transfer to longer programs. A borrower may enroll in a two-year
program for three years and decide to transfer to a four-year program
for the fourth year, which would prevent the borrower from becoming
responsible for accruing interest and allow the borrower to receive
three additional years of Direct Subsidized Loans. However, there is a
risk that borrowers who transfer from two-year programs after three
years without completing an associate's degree and who lose some of
their earned credit hours may become responsible for interest on
existing Direct Subsidized Loans if they are unable to complete the
four-year degree in the three years of remaining eligibility.
The financial impact of these interim final regulations on
borrowers who are responsible for accruing interest during the
repayment period will depend upon a number of factors. As stated
earlier, borrowers with equal loan debt entering repayment may end up
paying substantially different amounts overall depending on whether
borrowers request deferments because a borrower who becomes responsible
for interest on existing Direct Subsidized Loans will also be
responsible for such interest during any periods of deferment.
Borrowers who do not continue enrollment after meeting or exceeding the
150 percent limit are not responsible for accruing interest during such
periods.
These interim final regulations also limit Direct Subsidized Loan
eligibility for borrowers in teacher certification coursework. Previous
borrowing for other programs does not affect a borrower's eligibility
for Direct Subsidized Loans for teacher certification coursework;
instead, borrowers will begin new eligibility periods upon enrollment
in such a program and receipt of a Direct Subsidized Loan. As with any
other program, a borrower can only extend his or her eligibility period
by enrolling in longer teacher certification coursework. As discussed
previously in this preamble, subsidized usage periods accrued in
teacher certification coursework will count against the maximum
eligibility period of other teacher certification coursework. Once the
borrower has met or exceeded the 150 percent limitation, he or she will
still be able to use Direct Unsubsidized Loans to pay for eligible
programs and subsequent enrollment in such programs will not cause a
borrower to become responsible for accruing interest on any existing
Direct Subsidized Loans.
The limits on the use of Direct Subsidized Loans to pay for teacher
[[Page 28978]]
certification coursework may come at a cost to affected borrowers. Some
States require teachers to complete these programs on a periodic basis
to maintain their ability to teach, and these teachers may have to use
Direct Unsubsidized Loans to pay for additional certificates. As with
other programs, the overall impact of these regulations on borrowers
will depend upon borrower behavior throughout repayment.
These interim final regulations will also have potential financial
effects on borrowers who enroll in preparatory coursework for
undergraduate or graduate programs. Direct Subsidized Loans used to pay
for preparatory coursework for undergraduate programs will count
against borrowers' maximum eligibility periods. Therefore, borrowers
enrolled in preparatory courses for undergraduate studies will have
shorter periods to complete their undergraduate coursework without
losing eligibility for Direct Subsidized Loans. Enrolling in
preparatory coursework for a graduate program will not cause a borrower
to become responsible for interest on existing Direct Subsidized Loans,
but will still count against the maximum eligibility period of the
undergraduate program for which the borrower most recently received a
Direct Subsidized Loan. Borrowers who exhaust their Direct Subsidized
Loan eligibility during their undergraduate studies will be limited to
Direct Unsubsidized Loans during these courses.
In addition to the estimated costs described above, these interim
final regulations may offer non-quantifiable benefits to students and
the general population. Data from the 2004/2009 BPS show that about 58
percent of first-time, full-time students in bachelor degree programs
completed their programs within six years. These interim final
regulations could motivate students to finish on time and increase the
nation's on-time college graduation rate. An improved on-time
graduation rate could help reduce student debt and provide more
qualified and highly trained individuals for the country's workforce.
Reduced debt levels may allow graduates greater economic participation,
such as by purchasing homes or cars or starting small businesses.
We welcome comments about the costs and benefits of the changes
implemented in these interim final regulations.
Elsewhere in this section under the heading Paperwork Reduction Act
of 1995, we identify and explain burdens specifically associated with
information collection requirements.
2. Alternatives considered.
No alternatives were considered for the amendments to Sec. Sec.
685.202 and 685.304 because these amendments implement changes to the
HEA enacted by Congress, and we did not have discretion in developing
these amendments. With respect to Sec. 685.200, we did discuss and
consider alternative approaches to the regulations on preparatory
coursework for undergraduate studies and treatment of teacher
preparatory programs.
In the case of preparatory coursework, the Department wanted to
ensure that the regulations did not have a significant negative impact
on borrowers who need this coursework to prepare for undergraduate
studies. Research shows that preparatory coursework only has a modest
effect on the length of time that students take to graduate.\4\ For
this reason, we declined to treat these courses as stand-alone programs
for the purposes of subsidized loan eligibility.
---------------------------------------------------------------------------
\4\ Paul Attewell et al., "New Evidence on College
Remediation," Journal of Higher Education 77, no. 5 (October 2006):
886-924.
---------------------------------------------------------------------------
We also considered multiple approaches to the treatment of teacher
certification coursework. MAP-21 requires the Secretary to promulgate
regulations that address how the eligibility limit on Direct Subsidized
Loans and borrower responsibility for accruing interest will operate
for borrowers enrolled at an eligible institution in a program
necessary for a professional credential or a certification from a State
that is required for employment as a teacher in an elementary or
secondary school in that State. Because many States require teachers to
obtain such certificates as a prerequisite for teaching or as a
requirement to continue teaching, we believed that these programs
should be treated as stand-alone entities not affected by Direct
Subsidized Loan receipt in prior undergraduate programs. However, to be
consistent with the overall intent of the 150 percent limitation, we
provided in these interim final regulations that teacher certification
coursework is a continuation of the previous teacher certification
coursework for the purpose of subsidized loan eligibility.
In the spirit of good governance, the Department has done its due
diligence to ensure that these interim final regulations represent the
Department's best efforts to regulate and are consistent with
Congress's intent in passing MAP-21.
Accounting Statement
As required by OMB Circular A-4 (available at www.whitehouse.gov/sites/default/files/omb/assets/omb/circulars/a004/a-4.pdf),
in the following table we have prepared an accounting statement showing the
classification of the expenditures associated with the provisions of
these interim final regulations. This table provides our best estimate
of the changes in annual monetized transfers as a result of these
interim final regulations. Expenditures are classified as transfers
from affected student loan borrowers to the Federal Government and the
IHEs' cost of compliance with the paperwork requirements.
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[[Page 28979]]
Clarity of the Regulations
Executive Order 12866 and the Presidential memorandum ``Plain
Language in Government Writing'' require each agency to write
regulations that are easy to understand.
The Secretary invites comments on how to make these regulations
easier to understand, including answers to questions such as the
following:
Are the requirements in the regulations clearly stated?
Do the regulations contain technical terms or other
wording that interferes with their clarity?
Does the format of the regulations (grouping and order of
sections, use of headings, paragraphing, etc.) aid or reduce their
clarity?
Would the regulations be easier to understand if we
divided them into more (but shorter) sections? (A ``section'' is
preceded by the symbol ``Sec. '' and a numbered heading; for example,
Sec. 685.200.)
Could the description of the regulations in the
SUPPLEMENTARY INFORMATION section of this preamble be more helpful in
making the regulations easier to understand? If so, how?
What else could we do to make the regulations easier to
understand?
To send any comments that concern how the Department could make
these interim final regulations easier to understand, see the
instructions in the ADDRESSES section.
Initial Regulatory Flexibility Act Analysis
These interim final regulations primarily affect the terms of loans
made by the Department to some student loan borrowers. However, some of
the provisions also modify the financial aid counseling and reporting
requirements of IHEs. The U.S. Small Business Administration Size
Standards define ``for-profit institutions'' as ``small businesses'' if
they are independently owned and operated and not dominant in their
field of operation with total annual revenue below $7,000,000. The
standards define ``non-profit institutions'' as ``small organizations''
if they are independently owned and operated and not dominant in their
field of operation, or as ``small entities'' if they are institutions
controlled by governmental entities with populations below 50,000.
Under these definitions, an estimated 4,365 IHEs subject to the
proposed paperwork compliance provisions of the interim final
regulations are small entities. Accordingly, we have prepared this
initial regulatory flexibility analysis to present an estimate of the
effect on small entities of the statutory changes as implemented
through these interim final regulations. The Department welcomes
comments and information on this analysis.
Succinct Statement of the Objectives of, and Legal Basis for, the
Regulations
The interim final regulations reflect changes made to the Direct
Loan Program by MAP-21. Specifically, these regulations reflect the
provisions in MAP-21 that amended the HEA to extend the 3.4 percent
interest rate on Direct Subsidized Loans from July 1, 2012 to July 1,
2013, and to limit a borrower from receiving Direct Subsidized Loans
for a period in excess of 150 percent of the published length of the
educational program in which the borrower is enrolled.
Description of and, Where Feasible, an Estimate of the Number of Small
Entities to Which the Regulations Will Apply
These interim final regulations affect IHEs that participate in the
Federal Direct Loan Program and borrowers. Approximately 60 percent of
IHEs qualify as small entities, even if the range of revenues at the
not-for-profit institutions varies greatly. Using data from the
Integrated Postsecondary Education Data System, the Department
estimates that approximately 4,365 IHEs qualify as small entities--
1,891 are not-for-profit institutions, 2,196 are for-profit
institutions with programs of two years or less, and 278 are for-profit
institutions with four-year programs.
Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements of the Regulations, Including an Estimate of
the Classes of Small Entities That Will Be Subject to the Requirements
The interim final regulations modify or increase the paperwork
burden on entities participating in the Direct Loan Program, as
described in the Paperwork Reduction Act section of this preamble. In
particular, institutions will be required to report information that
will allow the Department to calculate the maximum eligibility period,
subsidized usage period, and remaining eligibility period for each
borrower. The information will include: The program's CIP Code; the
credential level of each program; the length of the program for which
the loan is intended; the enrollment status of the borrower at the time
the loan is disbursed; whether a loan is for teacher certification
coursework for which the institution awards no academic credential;
whether a loan is for preparatory coursework necessary for enrollment
in an undergraduate program; and whether the loan is for preparatory
coursework necessary for enrollment in a graduate or professional
program. Institutions will also provide program information to the
Department's NSLDS system and include information about the 150 percent
limit in financial aid entrance and exit counseling. The estimated
burden on small entities from these requirements is summarized in Table
9.
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[[Page 28980]]
Identification, to the Extent Practicable, of All Relevant Federal
Regulations That May Duplicate, Overlap, or Conflict With These Interim
Final Regulations
These interim final regulations are unlikely to conflict with or
duplicate existing Federal regulations.
Alternatives Considered
No alternatives were considered for small entities because these
interim final regulations implement changes to the HEA enacted by
Congress, and are necessary to implement the statutory changes. The
information required to be reported should be readily available to
IHEs. Further, the counseling information is critically important for
borrowers to receive when they first take out loans subject to the 150
percent limitation and as they make their educational plans, so delays
for small entities are not possible. The Department is committed to
helping all institutions meet the financial counseling requirements of
the interim final regulations and will provide materials or guidance to
assist with this requirement.
Waiver of Rulemaking and Delayed Effective Dates
Under the Administrative Procedure Act (APA) (5 U.S.C. 553), the
Department is generally required to publish a notice of proposed
rulemaking and provide the public with an opportunity to comment on
proposed regulations prior to establishing a final rule. In addition,
all Department regulations for programs authorized by Title IV of the
HEA (Title IV, HEA programs) are subject to the negotiated rulemaking
requirements of section 492 of the HEA. Section 492 provides
specifically that any regulations issued for the Title IV, HEA programs
are subject to negotiated rulemaking to obtain the advice of and
recommendations from individuals and groups involved in the student
financial assistance programs.
MAP-21 waives the negotiated rulemaking requirements in section 492
of the HEA (as well as the master calendar requirements in section 482
of the HEA) for regulations to implement the 150 percent limit on
Direct Subsidized Loan eligibility in the Direct Loan Program.
Consequently, the negotiated rulemaking requirements in section 492 of
the HEA do not apply to these interim final regulations and we will not
subject them to negotiated rulemaking.
Under section 553(a)(3)(B) of the APA, an agency is not required to
conduct notice-and-comment rulemaking when the agency ``for good cause
finds . . . that notice and public procedure thereon are impracticable,
unnecessary, or contrary to the public interest.'' Although these
interim final regulations are subject to the APA's notice-and-comment
requirements, the Secretary has determined that it would be
impracticable to conduct notice-and-comment rulemaking in time to
implement these changes by July 1, 2013.
In section 455(q) of the HEA, as added by MAP-21, Congress made a
number of changes to the Direct Loan Program to be effective on July 1,
2013. Even on an extremely expedited timeline, the Department could not
feasibly conduct notice-and-comment rulemaking, promulgate final
regulations, make necessary financial aid systems changes, and provide
counseling to borrowers in time to implement the statutory changes by
July 1, 2013.
Though MAP-21 was signed into law on July 6, 2012, nearly one year
prior to the date that the first cohort of borrowers could be affected,
the Department was unable to begin the regulatory drafting process
immediately. In order to ensure the continued integrity of the Title IV
loan programs, the Department first had to assess its operational
capabilities and what limitations these placed on possible regulatory
approaches. This internal analysis took several months and therefore
limited the period during which the Department could draft implementing
regulations.
The time period in which the Department could conduct notice-and-
comment rulemaking was further limited by the statute's specification
of a July 1, 2013, effective date, and requirement that institutions
and the Department take specific steps in order to implement the
statutory requirements by that date. First, although MAP-21 specifies
that borrowers are not affected until July 1, 2013, institutions begin
preparing financial aid packages in the spring that precedes an award
year (an award year begins on July 1). Shortly after a student's
financial aid package is prepared, the student must sign a master
promissory note and complete entrance counseling. Only then is the
financial aid award, effective as of July 1, disbursed to the student.
Thus, the regulations need to be in place long enough before July 1 to
allow schools to prepare, counsel students about, and make financial
aid awards.
Second, the Department must make certain necessary systems and
operational changes before July 1 in order to comply generally with the
HEA and protect borrowers, institutions, and taxpayers. Without changes
to current financial aid systems, schools would be unable to accurately
monitor a borrower's eligibility for Direct Subsidized Loans under the
150 percent limit because the determination of a borrower's maximum
eligibility period and remaining eligibility period requires
information about a borrower's attendance at all institutions, which
may not be available to the institution the borrower is presently
attending. Therefore, the Department must have regulations with legal
force to make the necessary system changes to NSLDS and the COD System
to monitor borrower eligibility, alert borrowers and institutions that
a borrower is about to reach or has reached the 150 percent limit on
eligibility for Direct Subsidized Loans, and ensure that no additional
Direct Subsidized Loans are originated or disbursed to an ineligible
borrower. Making such changes in a timely manner requires that
regulatory drafting and operational adjustments occur
contemporaneously.
If the Department were required to conduct notice-and-comment
rulemaking first, the Department could not begin implementing these
changes until after final regulations were published. Because interim
final regulations have legal force on the date of publication, the
Department can begin making these necessary changes. If the Department
were required to submit draft regulations for notice-and-comment
rulemaking, the Department could not begin implementing such changes
until final regulations were published. We would be forced to delay the
initiation of operational changes until late 2013 or early 2014, well
after the July 1, 2013, date set forth in the statute.
In addition, we need to ensure that borrowers are advised of the
terms and conditions of their eligibility for Direct Loans before July
1, 2013. The statute itself does not provide sufficient detail on the
150 percent limit. Therefore, we are not be able to provide borrowers
with the terms of the 150 percent limit on eligibility or with
information on how they will be affected until the interim final
regulations are published.
Notice-and-comment rulemaking is impracticable because the
Department could not conduct notice-and-comment rulemaking, issue final
regulations, make necessary systems changes, and provide counseling for
borrowers by July 1, 2013. In sum, if notice-and-comment rulemaking
were not waived, the Department would be unable to administer the
Direct Loan Program in compliance with the HEA.
[[Page 28981]]
Finally, we note that, contrary to public interest, there would be
a substantial loss of revenue for the Federal Government if these
interim final regulations were not implemented until after July 1,
2013. As previously noted, section 455(q) of the HEA is not self-
implementing. If the regulations are not published until after July 1,
2013, the Department will not be able to apply the restrictions to
borrowers until the date the regulations are published. Therefore,
borrowers who take out loans between July 1, 2013, and the date of
publication would not be subject to the 150 percent limit. As a result,
the Government would have increased costs for interest subsidies on
Direct Subsidized Loans and would not receive the expected savings from
interest payments made by the borrowers in this cohort who exceed the
150 percent limitation.
The Department estimates that approximately 62,000 borrowers in the
2013 cohort of borrowers (0.87 percent) would exceed the 150 percent
limit at some point during their postsecondary education and be
affected by the proposed regulations. Many of them would not be subject
to the regulatory provisions if the effective date were delayed. The
estimated savings associated with these affected borrowers in the 2013
cohort is $197 million. For example, the Department estimates that if
implementation were delayed until January 1, 2014, the $197 million in
outlay savings associated with the 2013 cohort in the 2013 MSR Baseline
would be eliminated in addition to $251 million in outlay savings
across the 2013 to 2023 cohorts from the PB2014 baseline. This is a
total of $448 million in savings reductions over the 2013 to 2023
cohorts.
For these reasons, the Secretary has determined that notice-and-
comment rulemaking is impracticable and contrary to the public
interest. Although the Department is adopting these regulations on an
interim final basis, we request public comment on these regulations.
After consideration of public comments, the Secretary will publish
final regulations.
We also note that the APA generally requires that regulations be
published at least 30 days before their effective date, unless the
agency has good cause to implement the regulations sooner (5 U.S.C.
553(d)(3)). In addition, these final regulations are a major rule for
purposes of the Congressional Review Act (CRA) (5 U.S.C. 801, et seq.).
Generally, under the CRA, a major rule takes effect 60 days after the
date on which the rule is published in the Federal Register. Section
808(2) of the CRA, however, provides that, if an agency finds for good
cause (and incorporates the finding and a brief statement of reasons
therefor in the rule issued) that notice of, and public procedure on, a
rule are impracticable, unnecessary, or contrary to the public
interest, the rule shall take effect at such time as the Federal agency
promulgating the rule determines. We are waiving the delayed effective
dates under both the APA and CRA and thus these interim final
regulations will take effect on their date of publication. We are
taking this action because if we do not waive the delayed effective
dates we are at risk of not meeting the statutory deadline of July 1,
2013, and facing significant repercussions, as explained in this
section of the preamble. Thus, we find there is good cause to waive the
delayed effective dates under the APA and the CRA.
Paperwork Reduction Act of 1995
As part of its continuing effort to reduce paperwork and respondent
burden, the Department conducts a preclearance consultation program to
provide the general public and Federal agencies with an opportunity to
comment on proposed and continuing collections of information in
accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C.
3506(c)(2)(A)). This helps ensure that: The public understands the
Department's collection instructions; respondents can provide the
requested data in the desired format; reporting burden (time and
financial resources) is minimized; collection instruments are clearly
understood; and the Department can properly assess the impact of
collection requirements on respondents.
A Federal agency may not conduct or sponsor a collection of
information unless the OMB approves the collection under the PRA and
the corresponding information collection instrument displays a
currently valid OMB control number. No person is required to comply
with, or is subject to penalty for failure to comply with, a collection
of information if the collection instrument does not display a
currently valid OMB control number.
Under 5 CFR 1320.13 we have requested OMB to conduct its review of
this collection of information on an emergency basis. We have asked OMB
to approve the collection of information on May 16, 2013, the same date
these interim final regulations are published in the Federal Register.
This does not affect your ability to comment on the interim final
regulations, or the collection associated with it. In addition, the
Department is concurrently asking for comments under the 60-day comment
period for the regular collection. In order for those comments to be
considered for the regular collection, the Department requests comments
by July 15, 2013. If you want to comment on the proposed information
collection requirements, please send your comments through the Federal
eRulemaking Portal at http://www.regulations.gov through by selecting
Docket ID number [ED-2013-OPE-0066].
The manner in which the Department will be implementing Sec.
685.200 will require institutions to submit additional information to
the COD System and to NSLDS under the authority in Sec. Sec.
685.301(e) and 685.309(b), respectively. Therefore, the collection
requirements associated with Sec. Sec. 685.301(e) and 685.309(b) will
change as a result of this rulemaking. Although Sec. Sec. 685.301(e)
and 685.309(b) are not modified by this rulemaking, the burden
associated with each provision will ultimately change as a result of
this rulemaking and the analysis of the burden associated with those
provisions will accompany this rulemaking. Section 685.304 also
contains information collection requirements. The Department has
submitted a copy of the information collection requests associated with
these sections to OMB for its review.
Section 685.301(e)--COD Reporting Requirements by Institutions
Section 685.301(e) provides that institutions originating and
disbursing loans under the Direct Loan Program must report a student's
"payment data'' to the Secretary. The term ``payment data'' is defined
in Sec. 685.102(b) to mean ``an electronic record that is provided to
the Secretary by an institution showing student disbursement
information''. The Department has implemented this provision by
requiring that institutions electronically report student and Direct
Loan information to the COD System. The provisions of Sec. 685.200(f)
provide that a borrower is not eligible to receive an additional Direct
Subsidized Loan if the borrower has no remaining eligibility period.
These interim final regulations also provide different rules for
borrowers who are enrolled in teacher certification coursework for
which the institution awards no academic credential, preparatory
coursework necessary for enrollment in an undergraduate program, and
preparatory coursework necessary for enrollment in a graduate or
professional program.
The Department will determine whether the borrower has continued
eligibility for Direct Subsidized Loans.
[[Page 28982]]
To ensure that the Department has the information necessary to make
that determination, institutions will be required to report additional
information to the Department's COD System. For example, institutions
will be required to report: The program's CIP Code; the credential
level of each program; the length of the program for which the loan is
intended; the enrollment status of the borrower at the time the loan is
disbursed; whether a loan is for teacher certification coursework for
which the institution awards no academic credential; whether a loan is
for preparatory coursework necessary for enrollment in an undergraduate
program; and whether the loan is for preparatory coursework necessary
for enrollment in a graduate or professional program.
These data will allow the Department to calculate the borrower's
maximum eligibility period, subsidized usage period, and remaining
eligibility period as described in Sec. 685.200(f)(1)(ii)-(f)(1)(iv),
determine whether the borrower is eligible to receive an additional
Direct Subsidized Loan, and ensure that borrowers do not receive Direct
Subsidized Loans if they are no longer eligible under Sec.
685.200(f)(2).
To estimate the total increase in burden imposed on institutions,
the Department estimated the average number of reports that each
institution submitted to COD each business day (by institutional type,
i.e., public, private, proprietary). We based our calculations of
estimated burdens on a 248 business-day year (365 days, less 104
weekend days and 13 Federal holidays) and assumed that institutions
submit data in large batches, not separately, for each individual
borrower. We estimate that the additional reporting will add 1 minute
(0.02 hours) of additional burden per report.
Of the 5,847 institutions that disbursed Direct Loans during the
most recently completed award year, 1,933 of them are public
institutions. The average number of reports per day that public
institutions submit is 2.73. We further estimate that additional
reporting will add 26,174 hours (1,933 institutions multiplied by 248
business days, multiplied by 2.73 reports per day, multiplied by 0.02
hours per report).
Of the 5,847 institutions that disbursed Direct Loans during the
most recently completed award year, 1,750 of them are private, not-for-
profit institutions. The average number of reports per day that
private, not-for-profit institutions submit is 1.29. We estimate that
additional reporting will add 11,197 hours (1,750 institutions
multiplied by 248 business days, multiplied by 1.29 reports per day,
multiplied by 0.02 hours per report).
Of the 5,847 institutions that disbursed Direct Loans during the
most recently completed award year, 2,164 of them are proprietary
institutions. The average number of reports per day that proprietary
institutions submit is 0.84. We further estimate that additional
reporting will add 9,016 hours (2,164 institutions multiplied by 248
business days, multiplied by 0.84 reports per day, multiplied by 0.02
hours per report).
Collectively, as a result of the new reporting requirements created
for public, private and proprietary institutions, the total burden
associated with Sec. 685.301(e), under 1845-NEW1, will increase by
46,387 hours (26,174 hours for public institutions + 11,197 hours for
private, not-for-profit institutions + 9,016 hours for proprietary
institutions).
Section 685.309(b)--NSLDS Enrollment Reporting by Institutions
Section 685.309(b) provides that eligible institutions that enroll
a Direct Loan borrower must report information about the borrower's
enrollment to the Secretary. The Department has implemented these
provisions by requiring institutions to electronically report, at least
twice per year, student and loan information to NSLDS. The new Direct
Subsidized Loan regulations in Sec. 685.200(f)(3) provide that a
borrower becomes responsible for accruing interest on any Direct
Subsidized Loans he or she previously received if the borrower has no
remaining eligibility period and enrolls in certain eligible programs.
The new regulations also provide specific rules for borrowers who are
enrolled in teacher certification coursework for which the institution
awards no academic credential, preparatory coursework necessary for
enrollment in a graduate or professional program, and programs for
which borrowers are not otherwise eligible for Direct Subsidized Loans.
The Department will determine whether the borrower is responsible
for accruing interest on his or her previously received Direct
Subsidized Loans. To ensure that the Department has the information to
necessary to make that determination, institutions will be required to
report additional information to NSLDS. For example, institutions will
be required to report: The CIP code and the credential level for the
program in which a borrower is enrolled; the length of the program in
academic years, weeks, or months (consistent with current institutional
reporting in the COD System); and the enrollment status of the
borrower.
These data will allow the Department to determine whether a
borrower who is not eligible for additional Direct Subsidized Loans is
responsible for accruing interest on his or her previously received
Direct Subsidized Loans.
To estimate the total increase in burden imposed on institutions
due to the new reporting requirements under Sec. 685.309(b), we
divided institutions into two groups--institutions that use enrollment
servicers, which are more automated and take less time to report
enrollment to the Department, and institutions that do not use
enrollment servicers and therefore take longer to report enrollment to
the Department. We assumed that each institution that reports
enrollment does so twice per year (as minimally required). We estimate
that the additional reporting will, for institutions using an
enrollment servicer, add 0.25 hours of burden per report. For
institutions that do not use an enrollment servicer, we estimate that
the additional reporting will add 0.5 hours of additional burden per
report.
Of the 8,196 institutions that reported enrollment information
during the most recently completed award year, 2,710 of them are public
institutions. Of the 2,710 public institutions, 2,092 use enrollment
servicers. For the 2,092 public institutions that use enrollment
servicers, we estimate that additional reporting will add 1,046 hours
(2,092 institutions multiplied by 0.25 additional hours per report,
multiplied by 2 reports per year).
Of the 8,196 institutions that reported enrollment information
during the most recently completed award year, 2,453 of them are
private, not-for-profit institutions. Of the 2,453 private, not-for-
profit institutions, 1,894 use enrollment servicers. For the 1,894
private, not-for-profit institutions that use enrollment servicers, we
estimate that additional reporting will add 947 hours (1,894
institutions multiplied by 0.25 additional hours per report, multiplied
by 2 reports per year).
Of the 8,196 institutions that reported enrollment information
during the most recently completed award year, 3,033 of them are
proprietary institutions. Of the 3,033 proprietary institutions, 2,342
use enrollment servicers. For the 2,342 proprietary institutions that
use enrollment servicers, we estimate that additional reporting will
add 1,171 hours (2,342 institutions multiplied by 0.25 additional hours
per report, multiplied by 2 reports per year).
[[Page 28983]]
Of the 8,196 institutions that reported enrollment information
during the most recently completed award year, 2,710 of them are public
institutions. Of the 2,710 institutions, 618 of them do not use
enrollment servicers. For the 618 public institutions that do not use
enrollment servicers, we estimate that additional reporting will add
618 hours (618 institutions multiplied by 0.5 additional hours per
report, multiplied by 2 reports per year).
Of the 8,196 institutions that reported enrollment information
during the most recently completed award year, 2,453 of them are
private, not-for-profit institutions. Of the 2,453 private, not-for-
profit institutions, 559 of them do not use enrollment servicers. For
the 559 private, not-for-profit institutions that do not use enrollment
servicers, we estimate that additional reporting will add 559 hours
(559 institutions multiplied by 0.5 additional hours per report,
multiplied by 2 reports per year).
Of the 8,196 institutions that reported enrollment information
during the most recently completed award year, 3,033 of them are
proprietary institutions. Of the 3,033 proprietary institutions, 691 of
them do not use enrollment servicers. For the 691 proprietary
institutions that do not use enrollment servicers, we estimate that
additional reporting will add 691 hours (691 institutions multiplied by
0.5 additional hours per report, multiplied by 2 reports per year).
Collectively, as a result of the new reporting requirements, the
total burden associated with Sec. 685.309(b), under 1845-NEW1, will be
increased by 5,032 hours (1,046 hours for public institutions using
enrollment servicers + 947 hours for private, not-for-profit
institutions using enrollment servicers + 1,171 hours for proprietary
institutions using enrollment servicers + 618 hours for public
institutions not using enrollment servicers + 559 hours for private,
not-for-profit institutions not using enrollment servicers + 691 hours
for proprietary institutions that do not use enrollment servicers).
Section 685.304--Entrance and Exit Counseling for Borrowers by
Institutions
The interim final regulations implement a new statutory requirement
that significantly limits a borrower's eligibility for Direct
Subsidized Loans and potentially results in the borrower becoming
responsible for accruing interest on existing Direct Subsidized Loans.
Under section 485 of the HEA, which requires that borrowers be provided
with entrance and exit counseling on the provisions governing Federal
student aid, institutions will be required to revise the entrance and
exit counseling provided to borrowers.
For entrance counseling, the added counseling requirements under
Sec. 685.304(a)(6)(xiii) will require institutions to explain: (1) The
possible loss of eligibility for additional Direct Subsidized Loans;
(2) how a borrower's maximum eligibility period, remaining eligibility
period, and subsidized usage period are calculated; (3) the possibility
that the borrower could become responsible for accruing interest on
previously received Direct Subsidized Loans during all periods; and (4)
the impact of borrower responsibility for accruing interest on the
borrower's total debt.
For exit counseling, the requirements added under new Sec.
685.304(b)(4)(xii) will require institutions to explain: (1) How the
borrower's maximum eligibility period, remaining eligibility period,
and subsidized usage period are calculated; (2) the sum of the
borrower's subsidized usage periods, as determined under Sec.
685.200(f)(1)(iii), at the time of the exit counseling; (3) the
consequences of continued borrowing or enrollment; (4) the impact of
the borrower becoming responsible for accruing interest on total
student debt; (5) that the Secretary will inform the student borrower
of whether he or she is responsible for accruing interest on his or her
Direct Subsidized Loans; and (6) that the borrower can access NSLDS to
determine whether he or she is responsible for accruing interest on any
Direct Subsidized Loans as provided in Sec. 685.200(f)(3).
The burden associated with entrance and exit counseling is two-
fold, there is burden on borrowers, who are required to complete
entrance counseling by virtue of their participation in the Title IV
loan programs and there is burden on institutions, which are required
to provide counseling to such borrowers.
We estimate that each entrance counseling interview will take 2
additional minutes (0.03 hours) per borrower to complete and estimate
the number of borrowers who took entrance counseling in the last award
year as 2,723,751. Therefore, we estimate that burden will increase by
81,713 hours (2,723,751 borrowers multiplied by 1 interview per
borrower multiplied by 0.03 additional hours per interview).
We estimate that, for all institutions, the additional entrance
counseling requirements will add 1 hour of burden per institution to
incorporate new material into their counseling and implement new
counseling procedures. Of the 5,847 institutions that are required to
perform entrance counseling, 1,933 are public institutions, 1,750 are
private, not-for-profit institutions, and 2,164 are proprietary
institutions. For the 1,933 public institutions, we estimate that
burden will increase by 1,933 hours (1,933 institutions multiplied by 1
hour). For the 1,750 private, not-for-profit institutions, we estimate
that burden will increase by 1,750 hours (1,750 institutions multiplied
by 1 hour). Of the 2,164 proprietary institutions, we estimate that
burden will increase by 2,164 hours (2,164 institutions multiplied by 1
hour). Collectively, we estimate that the total burden created for
institutions of higher education to provide the added entrance
counseling is 5,847 hours (1,933 hours + 1,750 hours + 2,164 hours).
We estimate that each exit counseling interview will take an
additional 3 minutes (0.05 hours) per borrower to complete and
estimated that 2,699,275 borrowers took exit counseling in the most
recently completed award year. Therefore, we estimate that burden will
increase by 134,964 hours (2,699,275 borrowers multiplied by 1
interview per borrower multiplied by 0.05 additional hours per
interview).
Of the 5,847 institutions, 1,933 are public institutions, 1,750 are
private, not-for-profit institutions, and 2,164 are proprietary
institutions. We estimate that, for all institutions, the additional
exit counseling requirements will add 1.5 hours of burden per
institution to incorporate new material into their counseling and
implement new counseling procedures. For the 1,933 public institutions,
we estimate that burden will increase by 2,900 hours (1,933
institutions multiplied by 1.5 hours). For the 1,750 private, not-for-
profit institutions, we estimate that burden will increase by 2,625
hours (1,750 institutions multiplied by 1.5 hours). Of the 2,164
proprietary institutions, we estimate that burden will increase by
3,246 hours (2,164 institutions multiplied by 1.5 hours). The total
burden created for institutions of higher education to provide the
added exit counseling is 8,771 hours (2,900 hours + 2,625 hours + 3,246
hours).
Collectively, under 1845-NEW1 the new entrance and exit counseling
regulatory requirements in section 685.304, will add 231,295 hours
([81,713 + 134,964 for borrowers] + [5,847 + 8,771 hours for
institutions]) of additional burden on institutions and borrowers.
Consistent with the discussion in this section, the following chart
describes the sections of the interim final regulations involving
information collections, the information being
[[Page 28984]]
collected, and the collections that the Department is submitting to OMB
for approval and public comment under the PRA, and the estimated costs
associated with the information collections. The monetized net costs of
the additional burden on institutions and borrowers using wage data
developed using BLS data, available at http://www.bls.gov/ncs/ect/sp/ecsuphst.pdf,
is $5,472,356 as shown in the chart below. This cost was
based on an hourly rate of $24.61 for institutions and $17.88 for
borrowers.
*NOTE: CHART OMITTED -- SEE PDF FILE
-----------------------------------------------------------------------------
Intergovernmental Review
This program is not subject to Executive Order 12372 and the
regulations in 34 CFR part 79.
Assessment of Educational Impact
In accordance with section 411 of the General Education Provisions
Act, 20 U.S.C. 1221e-4, the Secretary particularly requests comments on
whether these regulations require transmission of information that any
other agency or authority of the United States gathers or makes
available.
Accessible Format: Individuals with disabilities can obtain this
document in an accessible format (e.g., braille, large print,
audiotape, or compact disc) on request to the program contact person
listed under FOR FURTHER INFORMATION CONTACT.
Electronic Access to This Document: The official version of this
document is the document published in the Federal Register. Free
Internet access to the official edition of the Federal Register and the
Code of Federal Regulations is available via the Federal Digital System
at: www.gpo.gov/fdsys. At this site you can view this document, as well
as all other documents of this Department published in the Federal
Register, in text or Adobe Portable Document Format (PDF). To use PDF
you must have Adobe Acrobat Reader, which is available free at the
site.
You may also access documents of the Department published in the
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feature at this site, you can limit your search to documents published
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You may also view this document in text or PDF at the following
site: www.ifap.ed.gov.
(Catalog of Federal Domestic Assistance Number: 84.268 William D.
Ford Direct Loan Program)
List of Subjects in 34 CFR Part 685
Colleges and universities, Education, Loan programs--education,
Student aid.
Dated: May 10, 2013.
Arne Duncan,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary amends
part 685 of title 34 of the Code of Federal Regulations as follows:
PART 685--WILLIAM D. FORD FEDERAL DIRECT LOAN PROGRAM
0
1. The authority citation for part 685 continues to read as follows:
Authority: 20 U.S.C 1070g, 1087a, et seq., unless otherwise
noted.
0
2. Section 685.200 is amended by:
0
A. Revising paragraph (a)(2)(i) and the introductory text in paragraph
(a)(2)(ii).
0
B. Adding a new paragraph (f).
The revisions and addition read as follows:
Sec. 685.200 Borrower eligibility.
(a) * * *
(2)(i) A Direct Subsidized Loan borrower must--
[[Page 28985]]
(A) Demonstrate financial need in accordance with title IV, part F
of the Act; and
(B) In the case of a first-time borrower as defined in paragraph
(f)(1)(i) of this section, not have met or exceeded the limitations on
the receipt of Direct Subsidized Loans described in paragraph (f) of
this section.
(ii) The Secretary considers a member of a religious order, group,
community, society, agency, or other organization who is pursuing a
course of study at an institution of higher education to have no
financial need as that term is used in paragraph (a)(2)(i)(A) of this
section if that organization--
* * * * *
(f) Limitations on eligibility for Direct Subsidized Loans and
borrower responsibility for accruing interest for first-time borrowers
on or after July 1, 2013. (1) Definitions. The following definitions
apply to this paragraph:
(i) First-time borrower means an individual who has no outstanding
balance of principal or interest on a Direct Loan Program or FFEL
Program loan on July 1, 2013, or on the date the borrower obtains a
Direct Loan Program loan after July 1, 2013.
(ii) Maximum eligibility period is a period of time, measured in
academic years, equal to 150 percent of the length of the educational
program, as published by the institution, in which the borrower is
currently enrolled.
(iii) Subsidized usage period is, except as provided in paragraph
(f)(4) of this section, a period of time measured in academic years and
rounded down to the nearest quarter of a year calculated as the--
Number of days in the borrower's loan
period for a Direct Subsidized Loan
------------------------------------------------------------------------
Number of days in the academic year
for which the borrower receives
the Direct Subsidized Loan
(iv) Remaining eligibility period is the difference, measured in
academic years, between the borrower's maximum eligibility period and
the sum of the borrower's subsidized usage periods, except as provided
in paragraphs (f)(7)(ii) and (f)(7)(iii) of this section.
(2) Loss of eligibility for Direct Subsidized Loans. A first-time
borrower is not eligible for additional Direct Subsidized Loans when
the borrower has no remaining eligibility period. Such a borrower may
still receive Direct Unsubsidized Loans for which the borrower is
otherwise eligible.
(3) Borrower responsibility for accruing interest. (i)
Notwithstanding any provision of this part that provides for the
borrower to not be responsible for accruing interest on a Direct
Subsidized Loan or on the portion of a Direct Consolidation Loan that
repaid a Direct Subsidized Loan, and except as provided in paragraphs
(f)(6)(v) and (f)(7)(iv) of this section, a first-time borrower becomes
responsible for the interest that accrues on a previously received
Direct Subsidized Loan or on the portion of a Direct Consolidation Loan
that repaid a Direct Subsidized Loan beginning on the date--
(A) The borrower has no remaining eligibility period; and
(B) The borrower attends any undergraduate program or preparatory
coursework on at least a half-time basis at an eligible institution
that participates in the title IV, HEA programs.
(ii) The borrower continues to be responsible for the interest that
accrues on the portion of a Direct Consolidation Loan that repaid a
Direct Subsidized Loan for which the borrower previously became
responsible for accruing interest in accordance with paragraph
(f)(3)(i) of this section.
(iii) For any loan for which the borrower becomes responsible for
accruing interest in accordance with paragraph (f)(3)(i) of this
section, the borrower is responsible for only the interest that accrues
after the borrower meets the criteria in paragraph (f)(3)(i) of this
section and unpaid interest is capitalized in the same manner as for a
Direct Unsubsidized Loan.
(iv) A borrower who completes an undergraduate program and who has
not become responsible for accruing interest on Direct Subsidized Loans
as a result of attendance in that program does not become responsible
for accruing interest under paragraph (f)(3)(i) of this section on any
Direct Subsidized Loans received for attendance in any program prior to
completing that undergraduate program and for which the borrower has
not previously become responsible for accruing interest, regardless of
subsequent attendance in any other program.
(4) Exceptions to the calculation of subsidized usage periods. (i)
For a first-time borrower who receives a Direct Subsidized Loan in an
amount that is equal to the annual loan limit for a loan period that is
less than a full academic year in length, the subsidized usage period
is one year.
(ii) Except as provided in paragraph (f)(4)(i) of this section, for
a first-time borrower who is enrolled on a half-time or three-quarter-
time basis, the borrower's prorated subsidized usage period is
calculated by multiplying the borrower's subsidized usage period by 0.5
or 0.75, respectively.
(5) Subsequent attendance in programs of greater duration. A first-
time borrower who subsequently attends a program that is longer than
the program the borrower previously attended--
(i) Is eligible for a Direct Subsidized Loan if the borrower's
remaining eligibility period is greater than zero; and
(ii) Regains eligibility for Direct Subsidized Loans if the
borrower previously lost eligibility for Direct Subsidized Loans in
accordance with paragraph (f)(2) of this section.
(6) Treatment of preparatory coursework. For first-time borrowers
who receive a Direct Subsidized Loan under 34 CFR 668.32(a)(1)(ii) who
are enrolled for no longer than one 12-month period in a course of
study necessary for enrollment in an eligible program--
(i) Direct Subsidized Loans received for such preparatory
coursework are included in the calculation of the borrower's subsidized
usage period;
(ii) The maximum eligibility period for preparatory coursework
necessary for enrollment in an undergraduate program is the maximum
eligibility period for the undergraduate program for which the
preparatory coursework is required;
(iii) The maximum eligibility period for preparatory coursework
necessary for enrollment in a graduate or professional program is the
maximum eligibility period for the undergraduate program for which the
borrower most recently received a Direct Subsidized Loan;
(iv) For enrollment in preparatory coursework necessary for
enrollment in an undergraduate program, the borrower becomes
responsible for accruing interest as described in paragraph (f)(3) of
this section only if the borrower has no remaining eligibility period
in the program for which the coursework is required; and
(v) Enrollment in preparatory coursework necessary for enrollment
in a graduate or professional program does not result in a borrower
becoming responsible for accruing interest as described in paragraph
(f)(3) of this section.
(7) Treatment of teacher certification programs for which an
institution does not award an academic credential. For first-time
borrowers who receive a Direct Subsidized Loan under 34 CFR
668.32(a)(1)(iii) who are enrolled at an eligible institution in a
program necessary for a professional credential or certification from a
State that is required for employment as a teacher in an elementary or
secondary school in
[[Page 28986]]
that State but for which the institution awards no academic
credential--
(i) The borrower's maximum eligibility period for Direct Subsidized
Loans is a period of time equal to 150 percent of the length of the
teacher certification program, as published by the institution, in
which the borrower is currently enrolled;
(ii) For purposes of determining a borrower's remaining eligibility
period for such teacher certification programs, only Direct Subsidized
Loans the borrower received for enrollment in such programs are
included in the borrower's subsidized usage period;
(iii) For purposes of determining a borrower's remaining
eligibility period for programs other than a teacher certification
program for which an institution does not award an academic credential,
any Direct Subsidized Loans that the borrower received for enrollment
in such a teacher certification program are not included in a
borrower's subsidized usage period; and
(iv) Enrollment in such a teacher certification program does not
result in a borrower becoming responsible for accruing interest on any
Direct Subsidized Loan under paragraph (f)(3) of this section.
Sec. 685.202 [Amended]
0
3. Section 685.202 is amended, in paragraph (a)(1)(v)(E), by removing
the date "2012'' and adding, in its place, the date "1, 2013''.
0
4. Section 685.304 is amended by:
0
A. In paragraph (a)(6)(xi), removing the word ``and'' that appears
after the punctuation ``;''.
0
B. In paragraph (a)(6)(xii), removing the punctuation ``.'' and adding,
in its place, the punctuation and word ``; and''.
0
C. Adding paragraph (a)(6)(xiii).
0
D. Redesignating paragraphs (b)(4)(xii) and (b)(4)(xiii) as paragraphs
(b)(4)(xiii) and (b)(4)(xiv), respectively.
0
E. Adding a new paragraph (b)(4)(xii).
The additions read as follows:
Sec. 685.304 Counseling borrowers.
(a) * * *
(6) * * *
(xiii) For first-time borrowers as defined in Sec.
685.200(f)(1)(i), explain the limitation on eligibility for Direct
Subsidized Loans and possible borrower responsibility for accruing
interest described in Sec. 685.200(f), including--
(A) The possible loss of eligibility for additional Direct
Subsidized Loans;
(B) How a borrower's maximum eligibility period, remaining
eligibility period, and subsidized usage period are calculated;
(C) The possibility that the borrower could become responsible for
accruing interest on previously received Direct Subsidized Loans and
the portion of a Direct Consolidation Loan that repaid a Direct
Subsidized Loan during in-school status, the grace period, authorized
periods of deferment, and certain periods under the Income-Based
Repayment and Pay As You Earn Repayment plans; and
(D) The impact of borrower responsibility for accruing interest on
the borrower's total debt.
* * * * *
(b) * * *
(4) * * *
(xii) Explain to first-time borrowers, as defined in Sec.
685.200(f)(1)(i)--
(A) How the borrower's maximum eligibility period, remaining
eligibility period, and subsidized usage period are determined under
Sec. 685.200(f);
(B) The sum of the borrower's subsidized usage periods, as
determined under Sec. 685.200(f)(1)(iii), at the time of the exit
counseling;
(C) The consequences of continued borrowing or enrollment,
including--
(1) The possible loss of eligibility for additional Direct
Subsidized Loans; and
(2) The possibility that the borrower could become responsible for
accruing interest on previously received Direct Subsidized Loans and
the portion of a Direct Consolidation Loan that repaid a Direct
Subsidized Loan during in-school status, the grace period, authorized
periods of deferment, and certain periods under the Income-Based
Repayment and Pay As You Earn Repayment plans;
(D) The impact of the borrower becoming responsible for accruing
interest on total student debt;
(E) That the Secretary will inform the student borrower of whether
he or she is responsible for accruing interest on his or her Direct
Subsidized Loans; and
(F) That the borrower can access NSLDS to determine whether he or
she is responsible for accruing interest on any Direct Subsidized Loans
as provided in Sec. 685.200(f)(3);
* * * * *
[FR Doc. 2013-11515 Filed 5-15-13; 8:45 am] BILLING CODE 4000-01-P