Federal Student Aid - IFAP
   
PublicationDate: 8/2/2000
FRPart: IV
RegPartsAffected: Citation : (R)682.100
PageNumbers: 47633-47646
Summary: Death and Disability Discharges. (Comments Due September 18, 2000).
CommentDueDate: 8/18/2000

0802200004.pdf  PDF
This file contains this Federal Register in Portable Document Format (PDF). It can be viewed with version 3.0 or greater of the free Adobe Acrobat Reader software. Scroll down to see a text version of this document.]]

[

[Federal Register: August 2, 2000 (Volume 65, Number 149)]
[Proposed Rules]
[Page 47633-47646]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02au00-40]


[[Page 47633]]

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Part IV





Department of Education





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34 CFR Parts 674, 682, and 685



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


[[Page 47634]]


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DEPARTMENT OF EDUCATION

34 CFR Parts 674, 682, and 685

RIN 1845-AA12


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

AGENCY: Office of Postsecondary Education, Department of Education

ACTION: Notice of proposed rulemaking

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SUMMARY: The Secretary proposes to amend the regulations governing the
Federal Perkins (Perkins) Loan Program, Federal Family Education Loan
(FFEL) Program, and William D. Ford Federal Direct Loan (Direct Loan)
Program regulations in order to strengthen and improve the processes
for granting loan discharges based on a borrower's death or total and
permanent disability.

DATES: We must receive your comments on or before September 18, 2000.

ADDRESSES: Address all comments about these proposed regulations to Mr.
Brian Smith or Mr. Jon Utz, P.O. Box 23272, Washington, DC 20026-3272.
If you prefer to send your comments through the Internet, use the
following address: DISABILITYNPRM@ed.gov
If you want to comment on the information collection requirements,
you must send your comments to the Office of Management and Budget at
the address listed in the Paperwork Reduction Act section of this
preamble. You may also send a copy of these comments to the Department
representative named in this section.

FOR FURTHER INFORMATION CONTACT: For the FFEL and Perkins Loan
Programs, Mr. Brian Smith, or for the Direct Loan Program, Mr. Jon Utz;
U.S. Department of Education, 400 Maryland Avenue, SW., Room 3045,
Regional Office Building <greek-i>3, Washington, DC 20202-5345.
Telephone: (202) 708-8242. If you use a telecommunications device for
the deaf (TDD), you may call the Federal Information Relay Service,
(FIRS) at 1-800-877-8339.
Individuals with disabilities may obtain this document in an
alternative format (e.g., Braille, large print, audiotape, or computer
diskette) on request to the contact person listed under FOR FURTHER
INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Invitation To Comment

We invite you to submit comments regarding these proposed
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 proposed regulations that each of
your comments addresses and to arrange your comments in the same order
as the proposed regulations.
Under Sec. 482(c) of the Higher Education Act of 1965, as amended
(HEA), final regulations published before November 1 are generally
effective on July 1 of the following year. We realize, however, that
implementation of these proposed regulations might require significant
operational changes for lenders, guaranty agencies, schools, and the
Department. Therefore, we invite your comments on whether a later
effective date should be considered for these regulations.
We invite you to assist us in complying with the specific
requirements of Executive Order 12866 and its overall requirement of
reducing regulatory burden that might result from these proposed
regulations. Please let us know of any further opportunities we should
take to reduce potential costs or increase potential benefits while
preserving the effective and efficient administration of the program.
During and after the comment period, you may inspect all public
comments about these proposed regulations in Room 3045, Regional Office
Building 3, 7th and D Streets, SW, Washington, DC, between the hours of
8:30 a.m. and 4 p.m., Eastern time, Monday through Friday of each week
except Federal holidays.

Assistance to Individuals With Disabilities in Reviewing the
Rulemaking Record

On request, we will supply an appropriate aid, such as a reader or
print magnifier, to an individual with a disability who needs
assistance to review the comments or other documents in the public
rulemaking record for these proposed regulations. If you want to
schedule an appointment for this type of aid, you may call (202) 205-
8113 or (202) 260-9895. If you use a TDD, you may call the Federal
Information Relay Service at 1-800-877-8339.

General

Background

In the Perkins Loan, FFEL, and Direct Loan programs, a borrower's
obligation to repay a loan is discharged if the borrower dies or
becomes totally and permanently disabled. In all three programs current
regulations define a ``total and permanent disability'' as a medical
impairment that (1) prevents an individual from working and earning
money or attending school, and (2) is expected to continue indefinitely
or result in death.
In June 1999, the Department of Education's Inspector General (IG)
issued a report on the process of granting loan discharges in the FFEL
Program due to death or total and permanent disability. The report,
``Improving the Process for Forgiving Student Loans'' (audit control
number 06-80001), is available in Adobe Portable Document Format (PDF)
on the Internet at the following site: www.ed.gov/offices/OIG/
Areports.htm The IG identified the borrowers who received death or
disability discharges on FFEL Program loans from July 1, 1994 through
December 31, 1996, and matched the list against the Social Security
Administration's master earnings record. The IG found that 23 percent
of borrowers who received total and permanent disability discharges and
two percent of borrowers who received death discharges during the
period covered by the report earned wages, in some cases in excess of
$30,000 per year, after their loans were discharged. The IG also found
that a significant number of borrowers whose loans had been discharged
based on a total and permanent disability returned to school and
received new loans within one year after having the previous loan
discharged.
The IG concluded that inappropriate discharges were being granted
because of weaknesses in the current procedures for determining
eligibility for discharge. Although the IG looked only at discharges in
the FFEL Program, current regulations in the Perkins Loan and Direct
Loan programs are essentially the same as the FFEL regulations. In
response to the IG's findings, we are proposing regulatory changes that
would strengthen the current processes for approving discharges based
on death or total and permanent disability.

Negotiated Rulemaking

Section 492 of the HEA requires that, before publishing any
proposed regulations for programs under Title IV of the HEA, the
Secretary obtain public involvement in the development of the proposed
regulations. After obtaining advice and recommendations, the Secretary
must conduct a negotiated rulemaking process to develop the proposed
regulations. All published proposed regulations must conform to
agreements resulting from the negotiated rulemaking process unless the
Secretary reopens the negotiated rulemaking process or provides a
written explanation to the participants

[[Page 47635]]

in that process why the Secretary has decided to depart from the
agreements.
To obtain public involvement in the development of the proposed
regulations, we held listening sessions in Washington, DC, Atlanta,
Chicago, and San Francisco. Four half-day sessions were held on
September 13 and 14, 1999, in Washington, DC. In addition, we held
three regional sessions in Atlanta on September 17, in Chicago on
September 24, and in San Francisco on September 27, 1999. The Office of
Student Financial Assistance's Customer Service Task Force also
conducted listening sessions to obtain public involvement in the
development of our regulations.
We then published a notice in the Federal Register (64 FR 73458,
December 30, 1999) to announce our intention to establish two
negotiated rulemaking committees to draft proposed regulations
affecting Title IV of the HEA. The notice requested nominations for
participants from anyone who believed that his or her organization or
group should participate in this negotiated rulemaking process. The
notice announced that we would select participants for the process from
the nominees of those organizations or groups. The notice also
announced a tentative list of issues that each committee would
negotiate.
Once the two committees were established, they met to develop
proposed regulations over the course of several months, beginning in
February. The proposed regulations contained in this NPRM were
discussed with Negotiating Committee I (the committee), which was made
up of the following members:
<bullet> American Association of Collegiate Registrars and
Admissions Officers
<bullet> American Association of Cosmetology Schools
<bullet> American Association of State Colleges and Universities
(in coalition with American Association of Community Colleges)
<bullet> American Council on Education
<bullet> Career College Association
<bullet> Coalition of Higher Education Assistance Organizations
<bullet> Consumer Bankers Association
<bullet> Education Finance Council
<bullet> Education Loan Management Resources
<bullet> Legal Services
<bullet> National Association of College and University Business
Officers
<bullet> National Association of Independent Colleges and
Universities
<bullet> National Association of State Universities and Land-Grant
Colleges
<bullet> National Association of Student Financial Aid
Administrators
<bullet> National Association of Student Loan Administrators
<bullet> National Council of Higher Education Loan Programs
<bullet> National Direct Student Loan Coalition
<bullet> Sallie Mae, Inc.
<bullet> Student Loan Servicing Alliance
<bullet> The College Fund/United Negro College Fund
<bullet> United States Department of Education
<bullet> United States Student Association
<bullet> US Public Interest Research Group
As stated in the committee protocols, consensus means that there
must be no dissent by any member in order for the committee to be
considered to have reached agreement. Consensus was not reached on the
proposed regulations in this document.
During the negotiations, we proposed a conditional approach to
granting loan discharges based on total and permanent disability. As
reflected in these proposed regulations, a borrower who is initially
determined to be totally and permanently disabled would receive a
conditional discharge for a period of three years. A final discharge
would be granted only if the borrower continues to meet the discharge
eligibility requirements over the three-year conditional discharge
period.
We believe that the conditional discharge approach proposed in
these regulations is the proper response to the IG's findings. The IG's
report indicates that the current approach of granting total and
permanent disability discharges based on a physician's one-time
certification of a borrower's condition has resulted in a significant
number of inappropriate discharges being granted to borrowers who,
although previously certified as totally and permanently disabled,
subsequently had substantial earnings from work. The proposed
conditional approach would allow for a more accurate assessment of a
borrower's condition by monitoring the borrower's income over an
extended period after the onset of the disabling condition. If a
borrower had significant earnings from wages during the conditional
discharge period, we believe it would be reasonable to conclude that
the borrower was not totally and permanently disabled as we define that
term in our regulations. The conditional discharge approach
acknowledges that, as a result of advances in medicine and
rehabilitative technologies, many individuals with conditions that once
would have been totally and permanently disabling are now able to
return to work. Moreover, the conditional discharge approach is
consistent with other major government programs that provide disability
benefits. We are not aware of any other major Federal program that
provides disability-related benefits based on a one-time review of an
individual's condition.
The non-Federal negotiators generally opposed our proposed approach
for granting disability discharges. They felt that our proposal to
place loans in a conditional discharge status would be unfair to
borrowers, and that the conditional discharge approach would be
complicated, confusing, and difficult to administer. The non-Federal
negotiators believed that other steps should be taken to address the
concerns raised by the IG's report, rather than significantly changing
the process for granting total and permanent disability discharges.
Several of the non-Federal negotiators pointed out that the IG's report
had already increased awareness of the problem in the financial aid
industry. Some of the non-Federal negotiators referred to a separate
pilot program initiated by the Department to address some aspects of
the deficiencies identified in the report. Some of the non-Federal
negotiators recommended that we make further revisions to the
disability discharge request form, in addition to changes that we
already made in response to the IG's report. These negotiators
expressed the view that a more comprehensive form might make it easier
for a physician to determine whether a patient meets the criteria for a
total and permanent disability discharge, and would enhance the ability
of loan holders to review physician's certifications.
During the negotiations the non-Federal negotiators offered an
alternative proposal. Under this proposal, the initial process for
granting total and permanent disability discharges would remain
substantially unchanged from current practice. However, if a borrower
who had received a discharge worked and earned money over a certain
income threshold, or took out another title IV loan within two years of
receiving a discharge, the Secretary would revoke the discharge.
It is the position of the non-Federal negotiators that most loans
discharged are for borrowers who are totally and permanently disabled
in accordance with the regulations. The non-Federal negotiators stated
that their alternative proposal would allow us to address the concerns
raised by the IG's report by focusing directly on cases of potentially
erroneous discharges, thus preventing unnecessary confusion and anxiety
for all affected borrowers.
We understand the non-Federal negotiators' concerns about the

[[Page 47636]]

proposed conditional discharge approach. However, in light of the IG's
findings, we are convinced that significant changes to the current
procedures for granting discharges based on total and permanent
disability are necessary. We believe that the conditional discharge
approach proposed in these regulations would be the most fair method to
discharge a borrower's loans, and would best protect the interests of
taxpayers.
Some non-Federal negotiators also objected to our original proposal
to require that a request for a loan discharge based on the death of
the borrower (or student in the case of a PLUS loan) be supported by a
certified or original copy of a death certificate. They felt that
requiring a certified copy or original of a death certificate was not
necessary in every case. Many of the negotiators proposed that the loan
holder and guaranty agency be authorized to accept alternative
documentation in certain circumstances.
We have decided to accept this proposal, in part. These draft
regulations would authorize the chief executive officer of the guaranty
agency (for FFEL loans) or the chief financial officer of the
institution (for Perkins loans) to grant a discharge based on other
evidence in exceptional circumstances.

Significant Proposed Regulations

We discuss substantive issues under the sections of the proposed
regulations to which they pertain. Generally, we do not address
proposed regulatory provisions that are technical or otherwise minor in
effect.

Sections 674.61, 682.402, and 685.212 Death Discharge

Statute: Sections 437(a) and 455(a)(1) of the HEA provide for a
discharge of a borrower's FFEL or Direct Loan program loan if the
borrower, or the student for whom a parent takes out a PLUS loan, dies.
Section 464(c)(1)(F) of the HEA provides for the cancellation of a
borrower's Perkins loan if the borrower dies.
Current Regulations: The current Perkins Loan and FFEL Program
regulations require a death certificate or other proof of death
acceptable under State law in order to discharge a loan based on death.
The FFEL Program regulations further provide that if a death
certificate or other proof of death under State law is not available, a
guaranty agency may discharge the loan based on other evidence
establishing that the borrower has died.
The current Direct Loan Program regulations require acceptable
documentation of a borrower's death. In practice, acceptable
documentation for this purpose is the same types of documentation that
are required in the FFEL Program.
Proposed Regulations: The proposed Perkins Loan and FFEL Program
regulations would (1) require that the death certificate must be an
original or certified copy, and (2) specify that other documentation of
death may be used to support a discharge only under exceptional
circumstances and only with the approval of the chief executive officer
of the guaranty agency (for the FFEL Program) or the institution's
chief financial officer (for the Perkins Loan Program).
The proposed Direct Loan Program regulations would (1) specify that
an original or certified copy of the death certificate is required, and
(2) provide for loan discharge based on other documentation of death
only with the Secretary's approval.
Reasons: The proposed regulations address concerns raised in the
IG's report. Specifically, the IG found that two percent of borrowers
whose loans were discharged due to death during the period covered by
the report had earnings from wages after the date of discharge. In
reviewing a random sample of death certificates that were used as the
basis for loan discharge, the IG found documents that had been typed,
except for the deceased's name, which was hand-written. In one case, a
guaranty agency reported receiving a death certificate that had been
altered by changing the name and social security number of the deceased
individual.
We believe that requiring an original or certified copy of the
death certificate would help to ensure that death discharges are based
on valid documentation. We also believe that this practice would be
consistent with the evidence required by insurance companies and other
government programs. However, we recognize that, in rare cases, an
original or certified copy of the death certificate may not be
available. The non-Federal negotiators representing guaranty agencies
strongly urged us to permit the use of alternative documentation in
some circumstances and to allow the decision to rest with the agency.
We have decided to accept this proposal. However, the proposed
regulations would limit the conditions under which other documentation
may serve as the basis for discharge by requiring a senior official of
the agency or school to approve the use of any alternative
documentation.
This exception to the general requirement that an original or
certified copy of a death certificate be obtained is intended to ensure
that alternative documentation of death would be used only rarely, in
exceptional circumstances. We expect guaranty agencies and schools to
maintain separate records of their use of this exception and to make
those records available to us upon request.

Sections 674.51, 682.200, and 685.102 Definitions.

Current Regulations: The current definition of ``totally and
permanently disabled'' provides that an individual must be unable to
work and earn money or attend school because of the disabling
condition.
Proposed Regulations: The proposed regulations would remove the
requirement that an individual be unable to attend school from the
definition of ``total and permanent disability.''
Reasons: We believe that with the development of new technologies
to aid disabled individuals and the increased availability of distance
learning, it is no longer meaningful to use ability to attend school as
a measure of whether an individual is totally and permanently disabled.
Moreover, we have determined that our current definition of totally and
permanently disabled could have the unintended consequence of
discouraging disabled individuals from pursuing further education or
retraining. Accordingly, we are proposing to remove the requirement
that an individual be unable to attend school from the definition of a
``total and permanent disability.''

Sections 674.61, 682.402, 685.212, and 685.213 Total and Permanent
Disability Discharge

Statute: Sections 437(a) and 455(a)(1) of the HEA provide for
discharging a borrower's FFEL or Direct Loan program loan if the
borrower becomes permanently and totally disabled. Section 464(c)(1)(F)
of the HEA similarly provides for canceling a borrower's Perkins loan
if the borrower becomes permanently and totally disabled. In all three
programs, permanent and total disability must be determined in
accordance with regulations of the Secretary.
Current Regulations: Under current regulations, schools (for
Perkins loans), guaranty agencies (for FFEL loans), or the Secretary
(for all Direct Loans, and any Perkins or FFEL loans held by the
Secretary) discharge title IV loans after determining that a borrower
meets the criteria for a total and permanent

[[Page 47637]]

disability discharge. Traditionally, in granting these discharges, the
Secretary, schools, and guaranty agencies have primarily relied on a
physician's certification to make that determination. The FFEL and
Direct Loan program regulations define a ``total and permanent
disability'' as ``the condition of an individual who is unable to
attend school because of an injury or illness that is expected to
continue indefinitely or result in death.'' In the Perkins Loan Program
the definition is ``the inability to work and earn money or to attend
an institution because of an impairment that is expected to continue
indefinitely or result in death.''
If a borrower sends payments to the loan holder after it has
discharged the loan the loan holder returns those payments to the
borrower, with a notification that the loan has been discharged and
that any further payments are unnecessary.
Under the current regulations, a borrower whose title IV loan has
been discharged due to a disability may receive another title IV loan
only if a physician certifies that the borrower now can engage in
substantial gainful activity. The borrower must also acknowledge that
any additional loans that are received cannot be discharged due to the
same disability, unless the disability substantially deteriorates.
Proposed Regulations: Under the proposed regulations, a borrower
would apply to the loan holder for a disability discharge. Approval of
a request for a disability discharge would be based on either a
physician's certification or documentation from the Social Security
Administration that supports the conclusion that the borrower's
condition meets our requirements. If the loan holder (and guaranty
agency, for FFEL loans) approves the request, the loan would be
assigned to us. We would review the documentation that is submitted. If
we denied the request for a discharge, we would continue to hold the
loan and resume collection activity. If we approved the request for a
discharge, the borrower would receive a conditional discharge of the
loan. During the conditional discharge period, which would last for up
to three years, the borrower would not be required to make payments on
the loan. At the end of the conditional discharge period we would make
a final determination of eligibility for a disability discharge. If,
during the conditional discharge period, the borrower's annual earnings
from work are below the poverty line for a family of two, and the
borrower does not receive any additional title IV loans, we would grant
a final discharge of the loan. At that time, we would return any
payments made on the loan after the onset of the disabling condition.

Sections 674.61(b)(3)(ii), 682.402(c)(2)(ii), and 685.213(b)(2) Use of
Social Security Administration Disability Documentation

Proposed Regulations: Under the proposed regulations a borrower
could submit, in lieu of the physician's certification, documentation
from the Social Security Administration (SSA) that supports the
borrower's claim of total and permanent disability. Documentation from
the SSA must establish that the borrower is totally and permanently
disabled as defined in these proposed regulations. We are also
proposing that documentation from the SSA could be used when a
borrower, in order to qualify for additional title IV loan funds, needs
to document that the borrower's medical condition has improved to the
extent that the borrower is capable of substantial gainful activity.
Reasons: Individuals who are eligible to receive disability
benefits from the SSA have already gone through an extensive medical
review process. For this reason, we are proposing regulations that
would permit a borrower who is eligible for SSA disability benefits to
receive a disability discharge without obtaining an additional
certification from a physician, if the borrower can provide comparable
documentation from the SSA establishing that he or she is totally and
permanently disabled. Similarly, in the case of a borrower who wishes
to receive a title IV loan after having had a previous loan discharged
(or conditionally discharged) due to a total and permanent disability,
the proposed regulations would not require an additional physician's
certification if the borrower provides documentation from the SSA
showing that the borrower is able to engage in substantial gainful
activity.
The standard that an individual must meet to qualify for SSA
disability benefits is not the same as the total and permanent
disability standard in the proposed regulations. Some individuals who
are eligible to receive SSA disability benefits would not be considered
totally and permanently disabled according to our regulatory
definition. Therefore, we do not believe that it would be appropriate
to accept SSA documentation as an alternative to a physician's
certification in all cases.
We are working with the SSA to determine if there is specific
documentation that the SSA provides to some individuals that would be
comparable to a physician's certification that a borrower is totally
and permanently disabled as defined in our regulations. If we determine
that the SSA provides such documentation to some borrowers, we will
provide guidance on the specific documentation that a borrower would
have to provide.
We welcome your comments on the feasibility of using documentation
of eligibility for SSA disability benefits, in some cases, as an
alternative to a physician's certification of total and permanent
disability. We are especially interested in comments on how the use of
SSA documentation might affect administrative burden, borrower
understanding of the discharge eligibility requirements, and program
integrity.

Sections 674.61(b)(3)-(6), 682.402(c)(2)-(12), and 685.213(b) Initial
Determination of Total and Permanent Disability

Proposed Regulations: As noted earlier, the proposed regulations
would modify the current regulations and establish a new process for
evaluating disability discharge applications. Under the proposed
regulations, a FFEL or Perkins loan borrower would initiate the
discharge application process by submitting a discharge application to
the loan holder. If the loan holder, based on a review of the
application, determines that the borrower met the requirements for a
disability discharge, the loan would be assigned to the Department. We
would notify the borrower that we would be reviewing the application
and assorted documentation. We would also continue to review disability
discharge applications submitted by Direct Loan borrowers. In all three
loan programs, we could ask the borrower to provide additional
documentation to support the request for discharge.
Under the proposed regulations, if we determine that a borrower
meets the eligibility criteria for a conditional disability discharge,
we would place the loan into a conditional discharge status for up to
three years.
If we determine that the borrower does not qualify for a total and
permanent disability discharge, we would notify the borrower that we
had denied the request and that we would resume collection activity on
the loan.
Reasons: Under the proposed regulations, we would determine whether
a borrower meets the eligibility criteria for a total and permanent
disability discharge. During the negotiated rulemaking sessions, some
negotiators for FFEL loan holders, Perkins Loan schools, and guaranty
agencies indicated that they did not believe that they could properly

[[Page 47638]]

evaluate disability discharge applications. They felt that they had
neither the staff, the resources, nor the expertise to thoroughly
review or question a physician's certification of a borrower's
disability. The IG found that, in some cases, disability discharges
were approved based on an insufficient review of medical documentation.
Disability discharges were granted based on physicians' diagnoses that
were illegible, or for impairments that clearly were neither
``permanent'' nor ``total.'' The proposed regulations would require the
loan holder (or guaranty agency) to thoroughly review the documentation
provided by a borrower requesting a discharge due to a total and
permanent disability. However, we would assume the responsibility for
making the ultimate decision as to whether to grant the discharge. We
believe that this proposed process will help ensure that conditional
and final disability discharges are granted based on adequate medical
documentation, and that there is a consistent application of the
standards for granting those discharges.

Sections 674.61(b)(1), (6), and (7), 682.402(c)(1), (12), and (13), and
685.213(a)(1) and (d) Conditional Discharge

Proposed Regulations: Under the proposed regulations, if we make a
conditional determination that a borrower is totally and permanently
disabled, we would place the borrower's loan in a conditional discharge
status for a period of up to three years from the date of the onset of
the disabling condition. We would not require the borrower to make
payments on the loan.
If, at the end of the conditional discharge period, the borrower
still meets the discharge eligibility requirements, we would make a
final determination of eligibility for a total and permanent disability
discharge. We would discharge the loan, including any accrued interest,
and we would return any payments made on the loan after the onset of
the disability.
If the borrower ceased to meet the discharge eligibility
requirements during or at the end of the conditional discharge period,
we would cancel the conditional discharge, and collection activity
would resume on the loan. The borrower would not be required to repay
any interest that accrued on the loan during the period when collection
activity was suspended.
Reasons: The definition of ``totally and permanently disabled''
states, in part, that a borrower must be unable to work and earn money
because of an impairment that is expected to continue indefinitely or
result in death. However, the IG found that a significant number of
borrowers who received a total and permanent disability discharge
earned wages after their loans were discharged. We believe it is
reasonable to conclude that a borrower is not totally and permanently
disabled if there is evidence that the borrower has received income
from wages in excess of a very modest amount. Under the conditional
discharge approach proposed in these regulations, we would monitor a
borrower's income--as an indicator of whether the borrower is working--
over an extended period of time. We believe that this approach
addresses the concerns raised in the IG's report by providing for a
more accurate assessment of whether a borrower is totally and
permanently disabled than the ``snapshot'' approach in the current
regulations.
To minimize the administrative burden, and allow for final
determinations of discharge eligibility in a reasonable period of time,
we are proposing a conditional discharge period of up to three years.
We are especially interested in receiving comments on whether that
conditional discharge period is an appropriate length of time.

Sections 674.61(b)(2),(8), and (9), 682.402(c)(14) and (15), and
685.213(a)(2) and (c) Final Determination of Total and Permanent
Disability

Proposed Regulations: These proposed regulations would describe the
basis for the decision as to whether to grant a final disability
discharge. Under the proposed regulations, the loan would generally be
discharged if, during the conditional discharge period, the borrower's
income from employment did not exceed the poverty line for a family of
two for any 12-month period, and the borrower did not take out any
additional title IV loans. If the borrower did earn income from
employment above this threshold or did take out additional loans or was
otherwise determined not to be totally and permanently disabled, we
would not grant the final discharge.
A borrower could not apply for a total and permanent disability
discharge on a loan that has gone back into active collection status
after being conditionally discharged, unless the borrower's medical
condition substantially deteriorated.
Reasons: Under the proposed regulations, a borrower whose loan is
in a conditional discharge status would lose eligibility for a final
discharge if the borrower's earnings from work exceeded the poverty
line for a family of two for any 12-month period. The poverty
guidelines are updated annually in the Federal Register by the U.S.
Department of Health and Human Services (HHS) and are a reliable
indicator of current economic conditions that can be used as a measure
of minimal earnings. The poverty guidelines are posted on HHS' web site
at the following address:
http://aspe.hhs.gov/poverty/poverty.htm
The IG found that some borrowers who had received disability
discharges were earning substantial wages after the discharge, in some
cases over $30,000 a year. We do not believe that a borrower who has
worked consistently for a significant period of time, as indicated by
earnings above the poverty line, is totally and permanently disabled in
accordance with our regulations.
On the other hand, we also believe that terminating a conditional
discharge if the borrower had any earnings at all from work during the
three-year conditional discharge period could have the undesirable
effect of discouraging disabled borrowers from attempting to overcome
their disabilities. A disabled borrower might be able to generate
modest earnings from work, but find those earnings wiped out if the
conditional discharge was immediately cancelled as a result. Therefore,
the proposed regulations would not penalize a borrower who has minimal
earnings from work. However, a borrower who is clearly capable of
engaging in substantial gainful activity (as indicated by earnings in
excess of the poverty line) would lose eligibility for the total and
permanent disability discharge because, by definition, he or she would
not be totally and permanently disabled.
Under the proposed regulations, if a borrower seeks another title
IV loan during the conditional discharge period, we would cancel the
conditional discharge before the borrower could receive an additional
title IV loan. To receive another title IV loan, a borrower who has had
a prior loan discharged (or conditionally discharged) due to a total
and permanent disability must provide a certification, from a physician
or from the SSA, that the borrower can engage in substantial gainful
activity. By definition, a borrower who is totally and permanently
disabled must be unable to work and earn money. In our view, a borrower
no longer meets the eligibility requirements for a total and permanent
disability if a physician or the SSA has certified that the borrower is
capable of substantial gainful activity. Therefore, the borrower should
remain obligated to

[[Page 47639]]

repay the loan for which the discharge was previously sought.

Sections 674.61(b)(11) and (12), 682.402(r)(2) and (3), 685.212(g)(2)
Payments Received After the Onset of the Disabling Condition

Proposed Regulations: Under the proposed regulations, any payments
sent to an institution (on a Perkins Loan) or a lender or guaranty
agency (on an FFEL loan) by or on behalf of a borrower whose loan has
been assigned to us after the borrower has applied for a disability
discharge must be forwarded to us. If those payments are made on a loan
that we have placed in a conditional discharge status, the payments
will be applied to the loan. Similarly, we will apply any payments we
receive for a Direct Loan that we have conditionally discharged to that
loan. If we discharge the loan at the end of the conditional discharge
period, we will return to the sender payments we received after the
date of the onset of the disability.
Reasons: Once a loan is assigned to us, the prior holder of the
loan may not know the loan's current status. We could still be in the
process of determining if the borrower meets the eligibility
requirements for a conditional discharge, the loan could be in the
conditional discharge status, or a final determination could have been
made and the loan already discharged. While a discharge application is
pending or a loan is in a conditional discharge period, a final
determination of eligibility for a total and permanent disability
discharge has not been made. Until we have made a final determination
that a borrower qualifies for a total and permanent disability
discharge, any payments made on a loan should be applied to the loan.
If it turns out that the borrower was not eligible for a final
discharge of the loan, the payments would have reduced the outstanding
balance due at the time of that determination. If, on the other hand,
the loan is discharged at the end of the conditional discharge period,
all payments received after the onset of the disability will be
returned to the sender.

Sections 674.9, 682.201 and 685.200 Eligibility for Title IV Loans

Current Regulations: The current regulations state that a borrower
who has received a discharge of a previous title IV loan based on total
and permanent disability may receive another title IV loan only if a
physician certifies that the borrower can now engage in substantial
gainful activity. In addition, the borrower must sign a statement
acknowledging that the new title IV loan cannot be discharged in the
future based on any current impairment, unless that impairment
substantially deteriorates.
Proposed regulations: The proposed regulations would establish
similar eligibility requirements for a borrower who seeks a title IV
loan while a previous title IV loan is in a conditional discharge
period. Under the proposed regulations, in this situation, the borrower
would be eligible to receive another title IV loan only if (1) a
physician or the SSA certifies that the borrower is able to engage in
substantial gainful activity, (2) the borrower acknowledges that
neither the conditionally discharged loan nor the new loan could be
discharged on the basis of a pre-existing impairment (unless the
impairment substantially deteriorates), and (3) collection activity
resumes on the conditionally discharged loan.
Reasons: The proposed requirements for the physician's (or SSA's)
certification and borrower's acknowledgement would ensure that a
borrower whose previous loan was approved for a conditional discharge
or was permanently discharged is potentially capable of repaying the
new loan before receiving that new title IV loan. When the borrower
receives the new loan, he or she promises to repay the loan. We do not
believe it is appropriate to provide a new loan to a borrower who has
no prospect of repaying the loan. These students should request other
financial aid that does not require repayment.
The proposed regulations would also prevent a borrower from
obtaining a new loan and later having that loan discharged based on a
medical condition that the borrower used as the basis for an earlier
conditional or permanent discharge. The proposed regulations would
allow the certification to be provided by either a physician or the
SSA, as in the case with the documentation required for a conditional
determination of total and permanent disability.
Under the proposed regulations, a conditional discharge on a
borrower's prior loan must be cancelled and collection activity resume
on the loan before a borrower may receive an additional loan during the
conditional discharge period. This requirement reflects the fact that a
borrower who has been certified as capable of substantial gainful
activity no longer meets the eligibility requirements for a total and
permanent disability discharge.

Executive Order 12866

1. Potential Costs and Benefits

Under Executive Order 12866, we have assessed the potential costs
and benefits of this regulatory action.
The potential costs associated with the proposed regulations are
those resulting from statutory requirements and those we have
determined as necessary for administering these programs effectively
and efficiently.
These proposed regulations implement new procedures for borrowers
who apply for loan discharges due to death or total and permanent
disability. As more fully described elsewhere in this preamble, under
these regulations a borrower who is initially determined to be totally
and permanently disabled would receive a conditional discharge for a
period of three years. The Department of Education has estimated that
the proposed regulations would result in $72 million in Federal savings
over FY 2001-2005 as a result of borrowers who previously would have
received a discharge losing eligibility during the three-year
conditional period.
In assessing the potential costs and benefits--both quantitative
and qualitative--of this regulatory action, we have determined that the
benefits would justify the costs.
We have also determined that this regulatory action would not
unduly interfere with State, local, and tribal governments in the
exercise of their governmental functions.

2. Clarity of the Regulations

Executive Order 12866 and the President's Memorandum of June 1,
1998 on ``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 proposed
regulations easier to understand, including answers to questions such
as the following:
<bullet> Are the requirements in the proposed regulations clearly
stated?
<bullet> Do the proposed regulations contain technical terms or
other wording that interferes with their clarity?
<bullet> Does the format of the proposed regulations (grouping and
order of sections, use of headings, paragraphing, etc.) aid or reduce
their clarity?
<bullet> Would the proposed 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. 682.201 Eligible Borrowers).
<bullet> Could the description of the proposed regulations in the

[[Page 47640]]

SUPPLEMENTARY INFORMATION section of this preamble be more helpful in
making the proposed regulations easier to understand? If so, how?
<bullet> What else could we do to make the proposed regulations
easier to understand?
Send any comments that concern how the Department could make these
proposed regulations easier to understand to the person listed in the
ADDRESSES section of the preamble.

Regulatory Flexibility Act Certification

The Secretary certifies that these proposed regulations would not
have a significant economic impact on a substantial number of small
entities. These proposed regulations would affect institutions of
higher education, lenders, and guaranty agencies that participate in
title IV, HEA programs, and individual loan borrowers. The U.S. Small
Business Administration (SBA) Size Standards define for-profit or
nonprofit institutions with total annual revenue below $5,000,000 or
institutions controlled by governmental entities with populations below
50,000, and lenders with total assets under $100 million, as ``small
entities.'' Guaranty agencies are State and private nonprofit entities
that act as agents of the Federal government, and as such are not
considered ``small entities'' under the Regulatory Act. Individuals are
not defined as ``small entities'' under the Regulatory Flexibility Act.
A significant percentage of the over 4,000 lenders participating in
the FFEL program meet the definition of ``small entities.'' While these
lenders and a number of institutions of higher education fall within
the SBA size guidelines, the proposed regulations do not impose
significant new costs on these entities.
The Secretary invites comments from small institutions and lenders
as to whether the proposed changes would have a significant economic
impact on them.

Paperwork Reduction Act of 1995

Sections 674.9(h), 674.9(i), 674.61(a), 674.61(b), 682.201(a),
682.402(b), 682.402(c), 685.200(a), 685.212(a), 685.212(b), and
685.213(b) contain information collection requirements. Under the
Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the Department of
Education has submitted a copy of these sections to the Office of
Management and Budget (OMB) for its review.

Sections 674.9, 682.201, and 685.200--Borrower Eligibility

We are proposing changes in the requirements for a borrower to re-
establish eligibility for title IV loans after receiving a disability
discharge. Under the proposed regulations, a borrower has the
additional option of submitting a statement from the SSA certifying
that the borrower can engage in substantial gainful activity. This
change gives the borrower more flexibility in re-establishing
eligibility for title IV loans, and produces no additional burden.
Under the proposed regulations, before a borrower receives another
title IV loan, a conditional discharge on any prior loan must be
cancelled and that loan placed in an active collection status. As a
condition for receiving an additional title IV loan, the borrower must
also sign a statement acknowledging that any new loan, or a loan for
which a conditional or permanent discharge was previously granted, may
not be discharged in the future on the basis of the same, pre-existing
medical condition unless the borrower's medical condition substantially
deteriorates.
Borrowers are already required, under current regulations, to sign
such a statement to regain eligibility for an additional title IV loan
after receiving a total and permanent disability discharge. This change
does not alter the burden to borrowers.

Sections 674.61, 682.402, 685.212--Loan Discharge Due to Death

Guaranty agencies currently have the authority to discharge loans
based on alternative documentation if a copy of the death certificate
is unavailable. The proposed regulations maintain that requirement, but
specify that the chief executive officer of the guaranty agency must
make the decision to exercise that authority and limits the authority
to exceptional circumstances. This change does not increase the burden
on guaranty agencies.
Currently, schools in the Perkins Loan Program must base their
death cancellations on a death certificate or other evidence acceptable
under state law. By allowing only the chief financial officer of the
institution to grant total and permanent disability cancellations based
on alternative evidence of death, the burden on the schools is not
changed.

Sections 674.61, 682.402, 685.212, 695.213--Loan Discharge Due to
Disability

The proposed regulations do not alter the process for loan holders
and guaranty agencies in the FFEL and Perkins programs to review
requests for a discharge of a loan based on a total and permanent
disability. The only difference under the proposed process is that the
loan holder and guaranty agency will make a preliminary determination
of eligibility for the discharge. After making that determination, the
guaranty agency or other loan holder assigns the loan to us, and we
decide whether to discharge the loan. This change does not increase the
burden on loan holders or guaranty agencies.
In the Direct Loan Program, we will continue to make determinations
of eligibility for total and permanent disability discharges.
In addition, the proposed regulations allow borrowers to qualify
for a conditional discharge of their title IV loans by providing a
certification of eligibility for disability benefits from the SSA. This
allows borrowers increased flexibility in applying for the discharge,
and does not increase burden.
If you want to comment on the information collection requirements,
please send your comments to the Office of Information and Regulatory
Affairs, OMB, Room 10235, New Executive Office Building, Washington, DC
20503; Attention: Desk Officer for U.S. Department of Education. You
may also send a copy of these comments to the Department representative
named in the ADDRESSES section of this preamble.
We consider your comments on these proposed collections of
information in--
<bullet> Deciding whether the proposed collections are necessary
for the proper performance of our functions, including whether the
information will have practical use;
<bullet> Evaluating the accuracy of our estimate of the burden of
the proposed collections, including the validity of our methodology and
assumptions;
<bullet> Enhancing the quality, usefulness, and clarity of the
information we collect; and
<bullet> Minimizing the burden on those who must respond. This
includes exploring the use of appropriate automated, electronic,
mechanical, or other technological collection techniques or other forms
of information technology; e.g., permitting electronic submission of
responses.
OMB is required to make a decision concerning the collections of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, to ensure that OMB gives your comments full consideration,
it is important that OMB receives the comments within 30

[[Page 47641]]

days of publication. This does not affect the deadline for your
comments to us on the proposed regulations.

Assessment of Educational Impact

The Secretary particularly requests comments on whether these
proposed regulations would require transmission of information that any
other agency or authority of the United States gathers or makes
available.

Electronic Access to This Document

You may view this document in text or Adobe Portable Document
Format (PDF) on the Internet at the following sites:
http://ocfo.ed.gov/fedreg.htm
http://ifap.ed.gov/csb____html/fedlreg.htm
To use the PDF you must have the Adobe Acrobat Reader Program with
Search, which is available free at the first of the previous sites. If
you have questions about using the PDF, call the U.S. Government
Printing Office (GPO), toll free, at 1-888-293-6498; or in the
Washington, D.C., area at (202) 512-1530.

Note: The official version of this document is the document
published in the Federal Register. Free Internet access to the
official edition of the Federal Register and the Code of Federal
Regulations is available on GPO Access at:

http://www.access.gpo.gov/nara/index.html
(Catalog of Federal Domestic Assistance Numbers: 84.032 Federal
Family Education Loan Program; 84.037 Federal Perkins Loan Program;
and 84.268 William D. Ford Federal Direct Loan Program)

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

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

Dated: July 26, 2000.
Richard W. Riley,
Secretary of Education.
For the reasons discussed in the preamble, the Secretary proposes
to amend parts 674, 682, and 685 of Title 34 of the Code of Federal
Regulations as follows:

PART 674--FEDERAL PERKINS LOAN PROGRAM

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

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

2. Section 674.9 is amended by:
A. Revising paragraph (h)(1).
B. Redesignating paragraphs (i) and (j) as paragraphs (k) and (l).
C. Adding a new paragraph (i).
D. Adding a new paragraph (j).
The additions and revisions read as follows:


Sec. 674.9 Student eligibility.

* * * * *
(h)(1) In the case of a borrower whose previous loan under title IV
of the HEA was discharged due to total and permanent disability,
obtains a certification from a physician or from the Social Security
Administration that the borrower's condition has improved and that the
borrower is able to engage in substantial gainful activity; and
* * * * *
(i) In the case of a borrower whose previous loan under title IV of
the HEA was conditionally discharged based on a preliminary
determination that the borrower was totally and permanently disabled,
the borrower must--
(1) Comply with the requirements of paragraph (h) of this section;
and
(2) Sign a statement acknowledging that the loan that has been
conditionally discharged prior to a final determination of total and
permanent disability cannot be discharged in the future on the basis of
any impairment present when the borrower applied for a total and
permanent disability discharge, unless that impairment substantially
deteriorates.
(j) Does not have any loans under title IV of the HEA on which
collection activity has been suspended based on a conditional
determination that the borrower was totally and permanently disabled.
If a borrower applies for a loan under title IV of the HEA during the
conditional discharge period described in Secs. 674.61(b), 682.402(c),
or 685.212(b), the suspension of collection activity must be ended
before the borrower becomes eligible to receive any additional loans.
* * * * *
3. Section 674.51 is amended by adding a new paragraph (s) to read
as follows:


Sec. 674.51 Special definitions.

* * * * *
(s) Total and permanent disability: The inability to work and earn
money because of an impairment that is expected to continue
indefinitely or result in death.
* * * * *
4. Section 674.61 is amended by:
A. Revising the section heading.
B. Revising paragraph (a).
C. Revising paragraph (b).


Sec. 674.61 Discharge for death or disability.

(a) Death. An institution must discharge the unpaid balance of a
borrower's Defense, NDSL, or Perkins loan, including interest, if the
borrower dies. The institution must discharge the loan on the basis of
an original or certified copy of the death certificate. Under
exceptional circumstances and on a case-by-case basis, the chief
financial officer of the institution may approve a discharge based upon
reliable documentation other than a death certificate that supports the
discharge request.
(b) Total and permanent disability. (1) If the Secretary has made a
conditional determination that the borrower is totally and permanently
disabled, as defined in Sec. 674.51(s), the loan is conditionally
discharged for up to three years from the date that the disabling
condition began. The Secretary suspends collection activity on the loan
from the date of the conditional determination of total and permanent
disability until the end of the three-year conditional period. If the
borrower satisfies the criteria for a total and permanent disability
discharge during and at the end of the conditional discharge period,
the balance of the loan is discharged at the end of the conditional
discharge period and any payments received after the onset of the
disability as certified under Sec. 674.61(b)(3) are returned to the
sender.
(2) A borrower satisfies the criteria for a discharge of a loan
based on a total and permanent disability if, during and at the end of
the three-year conditional discharge period described in paragraph
(b)(1) of this section--
(i) The borrower's annual earnings from employment do not exceed
100 percent of the poverty line for a family of two, as determined in
accordance with the Community Service Block Grant Act; and
(ii) The borrower does not receive an additional loan under the
FFEL, Direct Loan or Federal Perkins Loan Programs.
(3) If a borrower becomes totally and permanently disabled after
receiving a Defense, NDSL, or Perkins loan, the institution shall,
pursuant to Sec. 674.50, assign the loan to the Secretary if--
(i) The borrower submits a certification by a physician and the
institution reviewed the application and determined that it is complete
and that it supports the conclusion that the borrower meets the
criteria for a total and permanent disability discharge, as defined in
Sec. 674.51(s); or
(ii) The borrower submits documentation from the Social Security
Administration that the Secretary has identified as acceptable to
support the

[[Page 47642]]

conclusion that the borrower meets the criteria for a total and
permanent disability discharge, as defined in Sec. 674.51(s).
(4) At the time the loan is assigned to the Secretary the
institution must notify the borrower that the loan has been assigned to
the Secretary for determination of eligibility for a total and
permanent disability discharge.
(5) If the Secretary determines that the certification provided by
the borrower does not support the conclusion that the borrower meets
the criteria for a total and permanent disability discharge, the
Secretary notifies the borrower that the application for a disability
discharge has been denied, and that the loan is due and payable under
the terms of the promissory note.
(6) If the Secretary makes a conditional determination that the
borrower is totally and permanently disabled, the Secretary notifies
the borrower that the loan will be in a conditional discharge status
for a period of up to three years after the onset of the disability as
certified under Sec. 674.61(b)(3).
(7) During the conditional discharge period, the borrower--
(i) Is not required to make any payments on the loan beginning on
the date the Secretary makes a conditional determination that the
borrower is totally and permanently disabled;
(ii) Is not considered past due or in default on the loan;
(iii) Must promptly notify the Secretary of any changes in address
or phone number;
(iv) Must promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(b)(2)(i) of this section; and
(v) Must provide the Secretary, upon request, with additional
documentation or information related to the borrower's eligibility for
discharge under this section.
(8) If, during and at the end of the conditional discharge period,
the borrower continues to satisfy the eligibility criteria for a total
and permanent disability discharge, as described in paragraph (b)(2) of
this section, the balance of the loan is discharged.
(9) If, at any time during or at the end of the three-year
conditional discharge period, the borrower does not continue to meet
the eligibility requirements for total and permanent disability
discharge, the Secretary resumes collection activity on the loan. The
Secretary does not require the borrower to pay any interest that
accrued on the loan from the date of the initial determination
described in paragraph (b)(6) of this section through the end of the
conditional discharge period.
(10) The notification to the borrower described in paragraph (b)(6)
of this section identifies the conditions of the conditional discharge
period specified in paragraphs (b)(6) through (9) of this section.
(11) If the institution receives any payments from or on behalf of
the borrower on or attributable to a loan that has been assigned to the
Secretary for determination of eligibility for a total and permanent
disability discharge, the institution must forward those payments to
the Secretary for crediting to the borrower's account. At the same time
that the institution forwards the payment, it must notify the borrower
that there is no obligation to make payments on the loan while it is
conditionally discharged prior to a final determination of eligibility
for a total and permanent disability discharge, unless the Secretary
directs the borrower otherwise.
(12) When the Secretary makes a final determination to discharge
the loan, the Secretary returns to the sender 100 percent of any
payments received, directly or indirectly, from or on behalf of the
borrower.
* * * * *

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

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

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

6. In Sec. 682.200(b) the definition of ``Totally and permanently
disabled'' is revised to read as follows:


Sec. 682.200 Definitions.

* * * * *
(b) * * *
Totally and permanently disabled. The condition of an individual
who is unable to work and earn money because of an injury or illness
that is expected to continue indefinitely or result in death.
* * * * *
7. Section 682.201 is amended by:
A. Redesignating paragraphs (a)(5), (a)(6), and (a)(7) as
paragraphs (a)(6), (a)(8), and (a)(9).
B. Adding a new paragraph (a)(5).
C. Revising redesignated paragraph (a)(6).
D. Adding a new paragraph (a)(7).


Sec. 682.201 Eligible borrowers.

(a) * * *
(5) The suspension of collection activity has been lifted from any
loan on which collection activity had been suspended based on a
conditional determination that the borrower was totally and permanently
disabled under Sec. 682.402(c).
(6) In the case of a borrower whose prior loan under title IV of
the Act was discharged after a final determination of total and
permanent disability, the student must--
(i) Obtain certification from a physician or from the Social
Security Administration that the borrower is able to engage in
substantial gainful activity; and
(ii) Sign a statement acknowledging that the FFEL loan the borrower
receives cannot be discharged in the future on the basis of any
impairment present when the new loan is made, unless that impairment
substantially deteriorates.
(7) In the case of a borrower whose prior loan under title IV of
the Act was conditionally discharged based on a preliminary
determination that the borrower was totally and permanently disabled,
the borrower must--
(i) Comply with the requirements of paragraph (a)(6) of this
section; and
(ii) Sign a statement acknowledging that the loan that has been
conditionally discharged prior to a final determination of total and
permanent disability cannot be discharged in the future on the basis of
any impairment present when the borrower applied for a total and
permanent disability discharge, unless that impairment substantially
deteriorates.
* * * * *
8. Section 682.402 is amended by:
A. Revising paragraph (b)(2).
B. Revising paragraph (b)(3).
C. Revising paragraph (c)(1)(i).
D. Redesignating paragraphs (c)(1)(ii) and (c)(1)(iii) as
paragraphs (c)(1)(iii) and (c)(1)(iv), respectively.
E. Adding a new paragraph (c)(1)(ii).
F. Amending redesignated paragraph (c)(1)(iii) by removing the
reference to paragraph ``(c)(1)(iii)(A)'' and adding, in its place,
``(c)(1)(iv)(A)''.
G. Amending redesignated paragraph (c)(1)(iv)(A) by removing the
reference to paragraphs ``(c)(1)(i) and (ii)'' and adding, in its
place, ``(c)(1)(i) through (iii)''.
H. Amending redesignated paragraph (c)(1)(iv)(B) by removing the
reference to paragraph ``(c)(1)(iii)(A)'' and adding, in its place,
``(c)(1)(iv)(A)''.
I. Amending redesignated paragraph (c)(1)(iv)(B) by removing the
reference to paragraphs ``(c)(1)(i) and (ii)'' and adding, in its
place, ``(c)(1)(i) through (iii)''.

[[Page 47643]]

J. Amending redesignated paragraph (c)(1)(iv)(C) by removing the
reference to paragraph ``(c)(1)(iii)(A)'' and adding, in its place,
``(c)(1)(iv)(A)''.
K. Revising paragraph (c)(2).
L. Revising paragraph (c)(3).
M. Redesignating paragraph (c)(4) as paragraph (c)(5).
N. Adding a new paragraph (c)(4).
O. Revising redesignated paragraph (c)(5).
P. Adding new paragraphs (c)(6) through (c)(16).
Q. Revising paragraph (g)(1)(iii).
R. Revising paragraph (g)(1)(iv).
S. Revising paragraph (k)(5)(i).
T. Redesignating paragraph (k)(5)(ii) as paragraph (k)(5)(iii).
U. Adding a new paragraph (k)(5)(ii).
V. Redesignating paragraphs (r)(2) and (r)(3) as paragraphs (r)(4)
and (r)(5), respectively.
W. Adding a new paragraph (r)(2).
X. Adding a new paragraph (r)(3).
Y. Revising redesignated paragraph (r)(5).


Sec. 682.402 Death, disability, closed school, false certification,
unpaid refunds, and bankruptcy payments.

* * * * *
(b) * * *
(2) To support a request for a discharge of a loan based on the
death of the borrower (or student in the case of a PLUS loan), the
borrower's representative (or the parent in the case of a PLUS loan)
must provide the lender with an original or certified copy of the death
certificate. Under exceptional circumstances and on a case-by-case
basis, the chief executive officer of the guaranty agency may approve a
discharge based upon other reliable documentation supporting the
discharge request.
(3) After receiving reliable information indicating that the
borrower (or student) has died, the lender must suspend any collection
activity against the borrower for up to 60 days and promptly request
that the borrower's representative (or the student's parent in the case
of a PLUS loan) provide the documentation described in paragraph (b)(2)
of this section. If additional time is required to obtain the
documentation, the period of suspension of collection activity may be
extended up to an additional 60 days. If the lender is not able to
obtain an original or certified copy of the death certificate or other
documentation acceptable to the guaranty agency, under the provisions
of paragraph (b)(2) of this section, during the period of suspension,
the lender must resume collection activity from the point that it had
been discontinued. The lender is deemed to have exercised forbearance
as to repayment of the loan during the period when collection activity
was suspended.
* * * * *
(c) * * *
(1)(i) If the Secretary has made a conditional determination that
the borrower is totally and permanently disabled, as defined in
Sec. 682.200(b), the loan is conditionally discharged for up to three
years from the date that the disabling condition began. The Secretary
suspends collection activity on the loan from the date of the
conditional determination of total and permanent disability until the
end of the conditional period. If the borrower satisfies the criteria
for a total and permanent disability discharge during and at the end of
the conditional discharge period, the balance of the loan is discharged
at the end of the conditional discharge period and any payments
received after the onset of the disability, as certified under
Sec. 682.402(c)(2) are returned to the sender.
(ii) A borrower satisfies the criteria for a discharge of a loan
based on a total and permanent disability if, during and at the end of
the three-year period described in paragraph (c)(1)(i) of this
section--
(A) The borrower's annual earnings from employment do not exceed
100 percent of the poverty line for a family of two, as determined in
accordance with the Community Service Block Grant Act; and
(B) The borrower does not receive an additional loan under the
FFEL, Direct Loan or Federal Perkins Loan Programs.
* * * * *
(2) After being notified by the borrower or the borrower's
representative that the borrower claims to be totally and permanently
disabled, the lender promptly requests that the borrower or the
borrower's representative--
(i) Submit, on a form approved by the Secretary, a certification by
a physician, who is a doctor of medicine or osteopathy and legally
authorized to practice in a State, that the borrower is totally and
permanently disabled as defined in Sec. 682.200(b); or
(ii) Submit documentation from the Social Security Administration
that the Secretary has identified as acceptable to support that the
borrower is totally and permanently disabled as defined in
Sec. 682.200(b).
(3) The lender must continue collection activities until it
receives either the certification of total and permanent disability
from a physician, a letter from a physician stating that the
certification has been requested and that additional time is needed to
determine if the borrower is totally and permanently disabled, or
documentation from the Social Security Administration, as described in
paragraph (c)(2)(ii) of this section. Except as provided in paragraph
(c)(5) of this section, after receiving the physician's certification
or letter, or the documentation from the Social Security
Administration, the lender may not attempt to collect from the borrower
or any endorser.
(4) The lender must submit a disability claim to the guaranty
agency--
(i) If the borrower submits a certification by a physician and the
lender makes a preliminary determination that the certification
supports the conclusion that the borrower meets the criteria for a
total and permanent disability discharge, as defined in
Sec. 682.200(b); or
(ii) If the borrower submits documentation from the Social Security
Administration that the Secretary has identified as acceptable to
support that the borrower is totally and permanently disabled as
defined in 682.200(b).
(5) If the lender determines that a borrower who claims to be
totally and permanently disabled is not totally and permanently
disabled, or if the lender does not receive the physician's
certification of total disability within 60 days of the receipt of the
physician's letter requesting additional time, as described in
paragraph (c)(3) of this section, the lender must resume collection and
is deemed to have exercised forbearance of payment of both principal
and interest from the date the lender received the physician's letter
requesting additional time and may capitalize, in accordance with
Sec. 682.202(b), any interest accrued and not paid during that period.
(6) The guaranty agency must pay a claim submitted by the lender
if--
(i) In the case of a preliminary determination of total and
permanent disability based on a physician's certification, the guaranty
agency has reviewed the application and determined that it is complete
and that it supports the conclusion that the borrower meets the
criteria for a total and permanent disability discharge, as defined in
Sec. 682.200(b); or
(ii) In case of a preliminary determination of total and permanent
disability based on a documentation from the Social Security
Administration, the guaranty agency has determined that the
documentation meets the requirements of Sec. 682.402(c)(2)(ii).

[[Page 47644]]

(7) If the guaranty agency does not pay the disability claim, the
lender must notify the borrower that the application for a disability
discharge has been denied and the lender will continue to collect on
the loan.
(8) If the guaranty agency pays the disability claim, the lender
must notify the borrower that the loan will be assigned to the
Secretary for determination of eligibility for a total and permanent
disability discharge.
(9) The Secretary reimburses the guaranty agency for a disability
claim paid to the lender after the agency pays the claim to the lender.
(10) The guaranty agency must assign the loan to the Secretary
pursuant to Sec. 682.409(c) and (d) after the Secretary pays the
disability claim.
(11) If the Secretary determines that the certification and
information provided by the borrower do not support the conclusion that
the borrower meets the criteria for a total and permanent disability
discharge, the Secretary notifies the borrower that the application for
a disability discharge has been denied, and that the loan is due and
payable under the terms of the promissory note.
(12) If the Secretary makes a preliminary determination that the
borrower is totally and permanently disabled, the Secretary notifies
the borrower that the loan is conditionally discharged and that the
conditional discharge period will last for up to three years after the
onset of the disability as certified under Sec. 682.402(c)(2).
(13) During the conditional discharge period, the borrower--
(i) Is not required to make any payments on the loan beginning on
the date the Secretary makes the conditional determination that the
borrower is totally and permanently disabled;
(ii) Is not considered delinquent or in default on the loan;
(iii) Must promptly notify the Secretary of any changes in address
or phone number;
(iv) Must promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(c)(1)(ii)(A) of this section; and
(v) Must provide the Secretary, upon request, with additional
documentation or information related to the borrower's eligibility for
discharge under this section.
(14) If, during and at the end of the conditional discharge period,
the borrower continues to satisfy the eligibility criteria for a total
and permanent disability discharge, as described in
Sec. 682.402(c)(1)(ii), the balance of the loan is discharged.
(15) If, at any time during or at the end of the three-year
conditional discharge period, the borrower does not continue to meet
the eligibility requirements for total and permanent disability
discharge, the Secretary resumes collection activity on the loan. The
Secretary does not require the borrower to pay any interest that
accrued on the loan from the date of the initial determination
described in paragraph (k)(12) of this section through the end of the
conditional discharge period.
(16) The notification to the borrower described in paragraph
(c)(12) of this section identifies the conditions of the conditional
discharge period specified in paragraphs (c)(12) through (15) of this
section.
* * * * *
(g) * * *
(1) * * *
(iii) In the case of a death claim, an original or certified death
certificate, or other documentation supporting the discharge request
that formed the basis for the determination of death.
(iv) In the case of a disability claim, a copy of the certification
of disability described in either paragraph (c)(2)(i) or (c)(2)(ii) of
this section.
* * * * *
(k) * * *
(5) * * *
(i) For death or bankruptcy claims, the shorter of 60 days or the
period from the date the guaranty agency determines that the borrower
(or the student for whom a parent obtained a PLUS loan, or each of the
co-makers of a PLUS loan) dies, or filed a petition for relief in
bankruptcy until the Secretary authorizes payment;
(ii) For disability claims, the shorter of 60 days or the period
from the date the guaranty agency makes a preliminary determination
that the borrower became totally and permanently disabled until the
Secretary authorizes payment; or
* * * * *
(r) * * *
(2) If the guaranty agency receives any payments from or on behalf
of the borrower on or attributable to a loan that has been assigned to
the Secretary for determination of eligibility for a total and
permanent disability discharge, the guaranty agency must forward those
payments to the Secretary for crediting to the borrower's account. At
the same time that the agency forwards the payment, it must notify the
borrower that there is no obligation to make payments on the loan while
it is conditionally discharged prior to a final determination of
eligibility for a total and permanent disability discharge, unless the
Secretary directs the borrower otherwise.
(3) When the Secretary makes a final determination to discharge the
loan, the Secretary returns to the sender 100 percent of any payments
received, directly or indirectly, from or on behalf of the borrower.
* * * * *
(5) If the guaranty agency has returned a payment to the borrower,
or the borrower's representative, with the notice described in
paragraph (r)(1) of this section, and the borrower (or representative)
continues to send payments to the guaranty agency, the agency must
remit all of those payments to the Secretary.
* * * * *

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

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

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

10. Section 685.200 is amended by revising paragraph (a)(1)(iv) to
read as follows:


Sec. 685.200 Borrower eligibility.

(a)(1) * * *
(iv)(A) In the case of a borrower whose prior loan under title IV
of the Act was discharged after a final determination of total and
permanent disability, the borrower--
(1) Obtains a certification from a physician or from the Social
Security Administration that the borrower is able to engage in
substantial gainful activity; and
(2) Signs a statement acknowledging that the Direct Loan the
borrower receives cannot be discharged in the future on the basis of
any impairment present when the new loan is made, unless that
impairment substantially deteriorates.
(B) In the case of a borrower whose prior loan under title IV of
the Act was conditionally discharged based on an initial determination
that the borrower was totally and permanently disabled--
(1) The suspension of collection activity on the previous loan has
been lifted;
(2) The borrower complies with the requirement in paragraph
(a)(1)(iv)(A)(1) of this section; and
(3) The borrower signs a statement acknowledging that neither the
previous loan nor the Direct Loan Program loan that the borrower
receives may be discharged in the future on the basis of any impairment
present when the new

[[Page 47645]]

loan is made, unless that impairment substantially deteriorates.
* * * * *
11. Section 685.212 is amended as follows:
A. By revising paragraphs (a) and (b).
B. By revising paragraph (g)(1).
C. By redesignating paragraph (g)(2) as (g)(3).
D. By adding a new paragraph (g)(2).


Sec. 685.212 Discharge of a loan obligation.

(a) Death. (1) If a borrower (or the student on whose behalf a
parent borrowed a Direct PLUS Loan) dies, the Secretary discharges the
obligation of the borrower and any endorser to make any further
payments on the loan if the borrower's representative (or the parent in
the case of a Direct PLUS Loan) provides the Secretary with an original
or certified copy of the borrower's (or student's) death certificate.
(2) If an original or certified copy of the death certificate is
not available, the Secretary discharges the loan only if the borrower's
representative (or the parent) provides the Secretary with other
reliable documentation acceptable to the Secretary establishing that
the borrower (or student) has died.
(b) Total and permanent disability. If a borrower meets the
requirements in Sec. 685.213(c), the Secretary discharges the
obligation of the borrower and any endorser to make any further
payments on the loan.
* * * * *
(g) Payments received after eligibility for discharge. (1) For the
discharge conditions in paragraphs (a), (c), (d), and (e) of this
section. Upon receipt of acceptable documentation and approval of the
discharge request, the Secretary returns to the sender, or, for a
discharge based on death, the borrower's estate, any payments received
after the date that the eligibility requirements for discharge were met
but before the date the discharge was approved. The Secretary also
returns any payments received after the date the discharge was
approved.
(2) For the discharge condition in paragraph (b) of this section.
Upon making a final determination of eligibility for discharge based on
total and permanent disability, the Secretary returns to the sender any
payments received after the onset of the disability, as certified under
Sec. 685.213(b). The Secretary also returns any payments received after
the date the final discharge was approved.
* * * * *
12. Section 685.214, 685.215, and 685.216 are redesignated as
Secs. 685.215; 685.216, and 685.220 respectively.
13. Section 685.213 is redesignated as Sec. 685.214; a new
Sec. 685.213 is added to read as follows:


Sec. 685.213 Total and permanent disability discharge.

(a) General. (1) If the Secretary makes an initial determination
that a borrower is totally and permanently disabled, the Secretary--
(i) Notifies the borrower that the loan will be in a conditional
discharge status for up to three years from the date that the disabling
condition began; and
(ii) Suspends any efforts to collect on the loan from the date of
the initial determination described in paragraph (a)(1) of this section
until the end of the conditional discharge period.
(2) If the borrower continues to meet the eligibility requirements
for total and permanent disability discharge during and at the end of
the three-year conditional discharge period, the Secretary--
(i) Discharges the obligation of the borrower and any endorser to
make any further payments on the loan at the end of that period; and
(ii) Returns to the borrower any payments received--
(A) During the three-year conditional discharge period; or
(B) After the date a final discharge was approved under paragraph
(a)(2)(i) of this section.
(3) If the borrower does not continue to meet the eligibility
requirements for total and permanent disability discharge at any time
during or at the end of the three-year conditional discharge period,
the Secretary resumes collection activity on the loan. The Secretary
does not require the borrower to pay any interest that accrued on the
loan from the date of the initial determination described in paragraph
(a)(1) of this section through the end of the conditional discharge
period.
(4) Except as provided in paragraph (e)(1) of this section, a
borrower is not considered totally and permanently disabled based on a
condition that existed at the time the borrower applied for the loan,
unless the borrower's condition substantially deteriorated after the
loan was made so as to render the borrower totally and permanently
disabled.
(b) Conditional determination of total and permanent disability.
The Secretary makes a conditional determination that a borrower is
totally and permanently disabled if the borrower (or the borrower's
representative) provides the Secretary with--
(1) A certification (on a form approved by the Secretary) by a
physician who is a doctor of medicine or osteopathy and legally
authorized to practice in a State that the borrower is totally and
permanently disabled as defined in 34 CFR 682.200(b); or
(2) Documentation from the Social Security Administration that the
Secretary has identified as acceptable to support that the borrower is
totally and permanently disabled as defined in Sec. 682.200(b).
(c) Eligibility requirements for total and permanent disability
discharge. A borrower meets the eligibility requirements for total and
permanent disability discharge if, during and at the end of the three-
year conditional discharge period described in paragraph (a)(1) of this
section--
(1) The borrower's annual earnings from employment do not exceed
100 percent of the poverty line for a family of two, as determined in
accordance with the Community Service Block Grant Act; and
(2) The borrower does not receive a new loan under the Direct Loan
Program, the Federal Family Education Loan Program, or the Federal
Perkins Loan Program.
(d) Conditional discharge period. During the conditional discharge
period described in paragraph (a)(1) of this section, the borrower--
(1) Is not required to make any payments of principal or interest
on the loan beginning on the date the Secretary makes a conditional
determination that the borrower is totally and permanently disabled;
(2) Is not considered to be delinquent or in default on the loan;
(3) Must promptly notify the Secretary of any changes in the
borrower's address or telephone number;
(4) Must promptly notify the Secretary if the borrower's annual
earnings from employment exceed the amount specified in paragraph
(c)(1) of this section; and
(5) Must provide the Secretary, upon request, with additional
documentation or information related to the borrower's eligibility for
discharge under this section.
(e) Provisions for discharge of Direct Consolidation Loans. (1) For
a Direct Consolidation Loan, a borrower is considered totally and
permanently disabled if he or she would be considered totally and
permanently disabled under the provisions of this section for all of
the loans that were included in the Direct Consolidation Loan if those
loans had not been consolidated.
(2) For the purposes of discharging a loan under paragraph (e)(1)
of this section, the provisions of this section apply to each loan
included in the

[[Page 47646]]

Direct Consolidation Loan, even if the loan is not a Direct Loan
Program loan.
(3) If requested, a borrower seeking to discharge a loan obligation
under paragraph (e)(1) of this section must provide the Secretary with
the disbursement dates of the underlying loans.

[FR Doc. 00-19508 Filed 8-1-00; 8:45 am]
BILLING CODE 4000-01-U

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