thefederalregister.com

Daily Rules, Proposed Rules, and Notices of the Federal Government

DEPARTMENT OF EDUCATION

34 CFR Parts 674, 682, and 685

[Docket ID ED-2012-OPE-0010]

RIN 1840-AD05

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

AGENCY: Office of Postsecondary Education, Department of Education.
ACTION: Final regulations.
SUMMARY: The Secretary amends the Federal Perkins Loan (Perkins Loan) program, Federal Family Education Loan (FFEL) program, and William D. Ford Federal Direct Loan (Direct Loan) program regulations. These final regulations implement a new Income-Contingent Repayment (ICR) plan in the Direct Loan program based on the President's "Pay As You Earn" repayment initiative, incorporate recent statutory changes to the Income-Based Repayment (IBR) plan in the Direct Loan and FFEL programs, and streamline and add clarity to the total and permanent disability (TPD) discharge process for borrowers in loan programs under title IV of the Higher Education Act of 1965, as amended (HEA). These final regulations implementing a new ICR plan and the statutory changes to the IBR plan will assist borrowers in repaying their loans while the changes to the TPD discharge process will reduce burden for borrowers who are disabled and seeking a discharge of their title IV debt.
DATES: Effective date:These regulations are effective July 1, 2013.

Implementation dates:For implementation dates, see theImplementation Date of These Regulationssection of theSupplementary Information.

FOR FURTHER INFORMATION CONTACT: For further information related to the Pay As You Earn repayment plan, and the IBR and ICR plans, Pamela Moran or Jon Utz at (202) 502-7732 or (202) 377-4040 or by email at:Pamela.Moran@ed.govorJon.Utz@ed.gov.For information related to Total and Permanent Disability Discharge, Gail McLarnon or Brian Smith at (202) 219-7048 or (202) 502-7551 or by email atGail.McLarnon@ed.govorBrian.Smith@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.

Individuals with disabilities can obtain this document in an accessible format (e.g., braille, large print, audiotape, or compact disc) on request to the contact person listed underFOR FURTHER INFORMATION CONTACT.

SUPPLEMENTARY INFORMATION:

Executive Summary

Purpose of This Regulatory Action: The combination of increased enrollment and rising tuition has contributed to a significant increase in student loan debt among Americans. The ability of recent college graduates to find immediate employment with wages adequate enough to repay this debt has been challenging.

For Federal student loan borrowers who suffer from a total and permanent disability, the Department's current TPD discharge process has led to inconsistencies in determining their eligibility for discharge and created undue hardship.

Based on the results of the negotiated rulemaking process and the advice and recommendations submitted by individuals and organizations in public hearing testimony and in written comments submitted to the Department, the final regulations will create a new Income-Contingent Repayment (ICR) plan in the Direct Loan program based on the President's “Pay As You Earn” repayment initiative, incorporate recent statutory changes to the Income-Based Repayment (IBR) plan in the Direct Loan and FFEL programs, and streamline and add clarity to the TPD discharge process for borrowers in the title IV, HEA loan programs.

Summary of the Major Provisions of This Regulatory Action: The final regulations will—

• Create a new ICR plan (the Pay As You Earn repayment plan) in the Direct Loan program based on the President's Pay As You Earn repayment initiative. The regulations support the administration's goal of making the statutory improvements made by the SAFRA Act included in the Health Care and Reconciliation Act of 2010 (Pub. L. 111-152) to the IBR plan available to some borrowers earlier than July 1, 2014, and make technical corrections and minor changes to the current ICR plan regulations, including the addition of provisions related to notification of income documentation requirements and the ICR loan forgiveness process.

• Amend the regulations governing the IBR plan to incorporate statutory changes made by the SAFRA Act and add new provisions related to notification of income documentation requirements, repayment options after leaving the IBR plan, and the IBR loan forgiveness process.

• Revise the Perkins Loan and FFEL program regulations to permit borrowers to apply directly to the Department for a TPD discharge. In the Direct Loan program, borrowers would continue to apply directly to the Department for TPD discharges, as they do under the current Direct Loan regulations.

• Revise the Perkins, FFEL, and Direct Loan program regulations to permit a TPD discharge based on a borrower's Social Security Administration (SSA) notice of award for Social Security Disability Insurance (SSDI) benefits or Supplemental Security Income (SSI) benefits indicating that the borrower's eligibility for disability benefits will be reviewed on a five- to seven-year schedule. This five- to seven-year review schedule classifies the borrower as permanently impaired—medical improvement not expected. Borrowers will still be subject to the three-year discharge review that is currently in place.

• Make conforming changes throughout the Perkins, FFEL, and Direct Loan program regulations referencing the use of an SSA disability notice of award in the TPD process.

• Reinstate a title IV loan discharged based on the borrower's TPD if the borrower receives a notice from the SSA indicating that the borrower is no longer disabled or the borrower's continuing disability review will no longer be the five- to seven-year period indicated in the SSA disability notice of award.

• Require a Perkins, FFEL, or Direct Loan borrower to notify the Secretary, during the three-year period following a TPD discharge, if the borrower has been notified by the SSA that the borrower is no longer disabled or that the borrower's continuing disability review will no longer be the five- to seven-year period indicated in the SSA disability notice of award.

• Modify regulations in the Perkins Loan, FFEL, and Direct Loan programs to provide more detailed information to borrowers in letters explaining why a disability discharge has been denied.

• Define the term “borrower's representative” for purposes of the disability discharge application process and state that references to a borrower or a veteran in the TPD discharge regulations include a borrower's representative or a veteran's representative.

• Specify that the Department will deny a disability discharge application and collection will resume on the borrower's loans if the borrower receives a disbursement of a new title IV loan or receives a new grant under the Teacher Education Assistance for College and Higher Education (TEACH)grant program made on or after the date the physician certified the borrower's disability discharge application or on or after the date the Secretary receives the borrower's SSA disability notice of award and before the date the Department makes a decision on the borrower's application for a TPD discharge.

• Specify that if a borrower's Perkins, FFEL, or Direct Loan program loan is reinstated, it returns to the status that it would have had if the TPD discharge application had not been received.

• Make corresponding changes to the TPD application process based on a certification from the Department of Veterans Affairs.

Chart 1 summarizes the final regulations and related benefits, costs, and transfers that are discussed in more detail in theRegulatory Impact Analysisof this preamble. The Department estimates that approximately 1.6 million borrowers could take advantage of the Pay As You Earn repayment plan with another million borrowers being affected by the statutory changes to the IBR plan reflected in these regulations. Significant benefits of these final regulations include a streamlined process for TPD discharges, enhanced notifications related to TPD, IBR, and ICR application and servicing processes, and reduced monthly payments for borrowers in partial financial hardship (PFH) status as a result of using a lower PFH threshold of 10 percent. The net budget impact of the regulations is $2.1 billion over the 2012 to 2021 loan cohorts.

Chart 1—Summary of the Proposed Regulations Issue and key features Benefits Cost/transfers Income-Contingent Repayment (34 CFR part 685): Establishes the Pay As You Earn repayment plan with features of IBR as revised by SAFRA for new borrowers on or after 10/1/2007 with a loan disbursement made on or after 10/1/2011. The Pay As You Earn repayment plan retains a cap on interest capitalization from current ICR Enhanced cash management option for borrowers Estimated net budget impact of $2.1 billion over the 2012-2021 loan cohorts. Establishes threshold for PFH at 10 percent for Pay As You Earn repayment plan borrowers Reduced payments and shorter forgiveness period may encourage acknowledgement and payment of debt Loan forgiveness after 20 years of qualifying payments compared to 25 years under current regulations Reduced monthly payments may allow greater participation in the economy Retains current ICR program as ICR An income-driven repayment option remains available to all borrowers Establishes process for borrower notification and processing of loan forgiveness by loan holders Income-Based Repayment (34 CFR part 685): Incorporates statutory changes from SAFRA Benefits mirror those associated with proposed ICR changes Threshold for PFH reduced from 15 percent to 10 percent for new borrowers after 7/1/2014 Loan forgiveness after 20 years of qualifying payments compared to 25 years under current regulations Income-Based Repayment (34 CFR part 685, 34 CFR part 682): A smaller payment amount made under a forbearance can qualify as the single payment made in standard repayment plan for borrower leaving IBR to select another repayment plan Improved notifications around annual recertification of income may reduce number of borrowers removed from PFH for paperwork reasons No net budget impact from proposed regulations. Modified notification and income documentation requirements for borrowers in IBR Estimated paperwork compliance costs of approximately $570,000 annually. Establishes process for borrower notification and processing of loan forgiveness by loan holders Total and Permanent Disability (34 CFR 674.61; 34 CFR 682.402; 34 CFR 685.213): Creates single discharge application process through the Department for all of a borrower's FFEL, Direct, and Perkins loans Simplifies process for borrowers Estimated paperwork compliance burden of approximately $725,000. Specifies that borrower's representative will receive all notifications and can be involved in all aspects of the process Departmental processing should increase consistency of TPD determinations Enhanced notifications, including more detailed reasons for denials and information about options for reapplying Process changes could reduce reinstatements for paperwork reasons Revised treatment of payments made following a TPD discharge Simplifies application process for borrowers and the Department Creation of standard form for reporting income during 3-year post-discharge monitoring period Allows for acceptance of an SSA disability notice of award for Social Security Disability Insurance or Supplemental Security Income benefits as proof of a borrower's TPD if the notice indicates that the SSA will review the borrower's continuing eligibility for benefits once every five to seven years, thus indicating that the borrower's disability is in the medical improvement not expected category. The borrower would still be subject to the three-year post discharge monitoring period

On July 17, 2012 the Secretary published a notice of proposed rulemaking (NPRM) for these programs in theFederal Register(77 FR 42086). The final regulations contain several changes from the NPRM. We fully explain the changes in theAnalysis of Comments and Changessection of the preamble that follows.

Implementation Date of These Regulations

Section 482(c) of the HEA requires that regulations affecting programs under title IV of the HEA be published in final form by November 1 prior to the start of the award year (July 1) to which they apply. However, that section also permits the Secretary to designate any regulation as one that an entity subject to the regulations may choose to implement earlier and the conditions for early implementation.

Consistent with the Department's objective to provide critical information to and improve servicing processes for borrowers who repay under the IBR plan, the Secretary is exercising his authority under section 482(c) to designate the following new and amended regulations included in this document for early implementation beginning on November 1, 2012 at the discretion of each loan holder, as appropriate:

(1) Section 682.209(a)(6)(v)(C).

(2) Section 682.211(f)(16).

(3) Section 682.215(d).

(4) Section 682.215(e).

The Secretary intends to implement the regulations governing the Pay As You Earn repayment plan as soon as possible. We will publish a separateFederal Registernotice to announce when the plan becomes available to borrowers.

Analysis of Comments and Changes

In response to the Secretary's invitation in the NPRM, 2,892 parties submitted comments on the proposed regulations. An analysis of the comments and of the changes in the regulations since publication of the NPRM follows.

We group major issues according to subject, with appropriate sections of the regulations referenced in parentheses. We discuss other substantive issues under the sections of the proposed regulations to which they pertain. Generally, we do not address technical and other minor changes.

Total and Permanent Disability Discharge General Comments

Comments:Many commenters supported the Department's proposed rules that allow a borrower to submit one application directly to the Department for a TPD discharge on all of the borrower's loans rather than to submit an application to each loan holder. The commenters also stated that the proposed changes to the discharge process would make it easier for disabled borrowers to provide the Department information necessary to make a loan discharge determination.

Discussion:The Department appreciates the commenters' support.

Changes:None.

Comments:Many individual commenters suggested a range of modifications to the proposed TPD regulations that would require statutory change. Some commenters suggested that private student loans should be discharged if the borrower is determined to be TPD. Other suggestions were:

• Eliminate the post-discharge monitoring period of a borrower's income following a TPD discharge;

• Do not treat loan amounts discharged based on the borrower's permanent and total disability as income for Federal tax purposes;

• Do not reinstate a title IV loan that was discharged due to TPD if the borrower has annual earnings from employment that exceed the poverty line if the earnings are not related to the degree financed by the discharged loan; and

• Require credit reporting agencies to remove references to TPD discharges from a borrower's credit report.

Discussion:We appreciate the commenters' suggestions; however, absent congressional action to amend the HEA or other pertinent laws, the Department generally does not have the authority to make these changes. The Federal Government does not have authority to require the discharge of a private student loan.

The post-discharge monitoring of a borrower's earned income is required under section 437(a)(1)(A)(ii) of the HEA when FFEL and, by extension, Direct Loans are discharged due to the borrower's TPD. Since the standard for TPD discharges is the same in all of the title IV loan programs, we believe that it is appropriate to require that the income of Perkins Loan borrowers be monitored and that the Perkins Loan be reinstated if the borrower's income exceeds the poverty line in the same manner as Direct Loan and FFEL program loans.

The treatment of loan amounts discharged based on the borrower's TPD as income for Federal tax purposes is governed by the Federal tax code, not the HEA.

Section 437(a)(1)(A)(ii) of the HEA requires reinstatement of a FFEL or Direct Loan discharged due to the borrower's TPD if the borrower's earned income exceeds the poverty line. The HEA does not distinguish between how the income is earned.

Finally, sections 430A(a)(5) and 463(c)(2)(C) of the HEA require FFEL and Perkins Loan holders, respectively, to report to credit reporting agencies when a FFEL or Perkins Loan is discharged due to TPD. This requirement applies to Direct Loans in accordance with section 455(a)(1) of the HEA. Section 605(a)(4) of the Fair Credit Reporting Act requires credit reporting agencies to report the disability discharge on the borrower's credit report for seven years.

Changes:None.

Comments:Many commenters indicated that they believed that the statutory definition of TPD added to the HEA by the Higher Education Opportunity Act of 2008 (HEOA) (Pub.L. 110-315) is very similar to the definition used in the disability benefit programs administered by the Social Security Administration (SSA). The commenters expressed the belief that, by including a similar definition of the term “total and permanent disability” in the HEA, Congress showed that it intended for the Department to align its TPD determinations more closely with the SSA's determinations of permanent disability status to reduce the TPD application burden on borrowers already determined to be permanently disabled by the SSA. The commenters requested that the Department accept existing SSA disability determinations when making a determination that a borrower is TPD for title IV loan discharge purposes. The commenters stated that using SSA disability determinations, along with the proposed rule to allow borrowers to submit a single TPD application to the Department rather than submit separate discharge applications to each of their lenders, would further streamline the Department's TPD discharge process and reduce burden on borrowers, the Department, and loan holders.

One commenter urged the Department to consider borrowers eligible for a TPD discharge if the borrower, at a minimum, met the SSA definition of “Medical Improvement Not Expected” or “Medical Improvement Possible” after a period of at least 60 months. Another commenter noted that when the Department transitioned to a single servicer for TPD application purposes and before the Department adopted the current TPD discharge process, the Department considered, but decided against, adopting a TPD process under which borrowers could provide proof of an SSA disability determination in the form of an SSA disability notice of award indicating when the borrower's next SSA medical review would occur as evidence that the borrower was totally and permanently disabled for title IV loan discharge purposes. The commenter urged the Department to reconsider this decision.

Finally, several commenters noted that the Department already accepts disability determinations from the Department of Veterans Affairs (VA) when making the determination that a title IV borrower is eligible for a TPD discharge and urged the Department to do the same with SSA disability determinations.

Discussion:Upon consideration of these comments and internal deliberations, we have determined that we will accept the specific SSA notice of award for Social Security Disability Insurance (SSDI) benefits or Supplemental Security Income (SSI) benefits as proof of a borrower's TPD if the notice indicates that the SSA will review the borrower's continuing eligibility for SSDI or SSI benefits once every five to seven years. Sections 437(a) and 464(c)(1)(F) of the HEA provide for the discharge of a borrower's title IV loans if the borrower becomes totally and permanently disabled in accordance with the Secretary's regulations, or if the borrower is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death, has lasted for a continuous period of not less than 60 months (five years), or can be expected to last for a continuous period of not less than 60 months (five years). In two related final regulations published in theFederal Registeron October 28, 2009 (74 FR 55626), and on October 29, 2009 (74 FR 55972), we included the specific statutory substantial gainful activity standard in our regulations at §§ 674.51(aa) and 682.200(b). Section 674.51(x) of the Department's October 28, 2009, final regulations and § 682.200(b) of the Department's October 29, 2009, final regulations both defined “substantial gainful activity” to mean a level of work performed for pay or profit that involves doing significant physical or mental activities, or a combination of both. We do not use an earnings standard to determine substantial gainful activity. However, if a title IV borrower has received a TPD discharge and, within three years after the loan is discharged, the borrower earns income from employment that exceeds 100 percent of the poverty guideline for a family of two ($1,275 per month in the 48 contiguous states, $1,577 per month in Alaska, and $1,451 per month in Hawaii) in a year, the borrower is not considered to have been disabled and the loan repayment obligation is reinstated.

The SSA defines the term “disability” to mean the inability of an individual to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months (42 U.S.C. 423). Upon making a disability determination based on this standard, the SSA is required by law to conduct disability reviews to determine the continuing eligibility of an individual for SSDI or SSI benefits where a finding has been made that such disability is permanent at such times as the Commissioner of Social Security determines to be appropriate (42 U.S.C. 421). The SSA has promulgated regulations to meet this statutory requirement under 20 CFR 404.1590 and 20 CFR 416.990. (20 CFR Part 404 and 20 CFR Part 416 govern the SSDI and SSI programs, respectively). Specifically, under 20 CFR 404.1590(d) and 20 CFR 416.990(d) of the SSA regulations, if an individual's impairment is expected to improve, generally the SSA reviews the individual's eligibility for disability benefits at intervals from six to 18 months following its most recent decision. This status is referred to as “medical improvement expected diary” under 20 CFR 404.1590(c) and 20 CFR 416.990(c) of the SSA regulations. If an individual's disability is not considered permanent but is such that any medical improvement is possible, the SSA reviews the individual's continuing eligibility for disability benefits at least once every three years under 20 CFR 404.1590(d) and 20 CFR 416.990(d), unless SSA determines the requirement should be waived under 20 CFR 404.1590(g) or 20 CFR 416.990(g). This type of disability is considered a “nonpermanent impairment” under 20 CFR 404.1590(c) and 20 CFR 416.990(c) of SSA regulations. Finally, if an individual's disability is considered a “permanent impairment,” the SSA reviews an individual's eligibility for benefits no less frequently than once every seven years, but no more frequently than once every five years under § 404.1590(d) and § 416.990(d). SSA regulations at 20 CFR 404.1590(c) and 20 CFR 416.990(c) use the term “permanent impairment” to refer to a case in which any medical improvement in an individual's impairment is not expected. The SSA uses the term “permanent impairment” to mean an extremely severe condition determined on the basis of the SSA's experience in administering the disability programs to be at least static, but more likely to be progressively disabling either by itself or by reason of impairment complications and unlikely to improve so as to permit the individual to engage in substantial gainful activity. SSA may also consider the interaction of the individual's age, impairment consequences and lack of recent attachment to the labor market in determining whether an impairment is permanent. Regardless of an individual's classification, the SSA will conduct an immediate continuing disability review if a question of continuing disability is raised that meets any of the provisions of 20 CFR404.1590(b) or 20 CFR 416.990(b). When the SSA notifies an individual that he or she is eligible for disability benefits, the notice also tells the individual when he or she can expect the first continuing disability review.

The SSA regulations, at 20 CFR 404.1572 and 20 CFR 416.910, use the term “substantial gainful activity” to describe a level of work activity and earnings. “Substantial work activity” involves doing significant physical or mental activities. “Gainful work activity” is either work performed for pay or profit or work of a nature generally performed for pay or profit. Substantial gainful activity is also indicated by earnings averaging over $1,010 per month (for the year 2012) for individuals whose impairment is anything other than blindness. The formula for determining substantial gainful activity for individuals who are blind is set forth in 42 U.S.C. 423, see also 20 CFR 404.1584, Social Security Ruling 12-1p. The formula for determining substantial gainful activity for individuals who are not blind is similar to that used for individuals who are blind and is provided in 20 CFR 404.1574 and 20 CFR 404.1575.

Although the Department's definition of “substantial gainful activity” does not precisely mirror the SSA's definition, we agree that they are substantially similar. For example, both agencies require that an individual must be unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment in order to be determined disabled. Both agencies also define substantial gainful activity to mean a level of work performed for pay or profit that involves doing significant physical or mental activities or a combination of both. Both agencies allow an individual to engage in minimal levels of employment after receiving a disability determination as long as such employment does not exceed a specified dollar amount. And while it is unclear whether Congress intended for the Department to align its TPD determinations with the determination of permanent disability made by the SSA, we acknowledge that the standard a borrower must meet to establish eligibility for a title IV TPD discharge under section 437(a)(1) is substantially similar to the SSA's regulatory scheme governing a “permanent impairment” in 20 CFR 404.1590 and 20 CFR 416.990.

Section 437(a)(3) of the HEA explicitly provides the Secretary with the authority to provide the appropriate safeguards with regard to TPD. In light of this authority, the substantial similarity between the SSA and TPD statutory standards, and the burden reduction for applicants that will result from making this change, we have decided to allow a borrower to submit, as proof of the borrower's TPD, an SSA determination of permanent impairment-medical improvement not expected in the form of a SSDI or SSI notice of award that informs a borrower that his or her eligibility for SSA disability benefits will be reviewed no less frequently than once every seven years and no more frequently than once every five years (the five/seven year category).

We chose to accept only the five/seven year category as proof of TPD as opposed to the SSA's continuing disability review standard of every six- to 18-months or every three years to meet the Department's standard for TPD discharge purposes because the latter two standards indicate medical improvement expected or that medical improvement is possible, respectively, under 20 CFR 404.1590(c) and 20 CFR 416.990 of SSA's regulations. Medical improvement is expected in cases where a borrower's impairment can be treated and recovery can be anticipated. Medical improvement is possible where a borrower's impairment does not rise to the level of severity of an impairment that is considered permanent.

These regulations, along with regulations to allow borrowers to submit a single TPD application to the Department rather than separate discharge applications to each of their lenders, will further streamline the Department's TPD process and reduce burden on the Department as well as on borrowers who have already obtained such SSA documentation. Specifically, if we review the borrower's TPD application and the SSA notice of award for SSDI or SSI benefits specifies that the borrower will be reviewed no less frequently than once every seven years and no more frequently than once every five years for the purpose of establishing the borrower's continued eligibility for SSDI or SSI benefits, we will consider the borrower's title IV loans discharged as of the date we receive the SSA notice of award. The borrower would not be required to submit a certification by a physician that the borrower is TPD; the SSA notice of award for SSDI or SSI benefits alone will suffice as proof of the borrower's TPD.

We use the date the Secretary receives the borrower's SSA notice of award for SSDI or SSI benefits to ensure, for the program integrity purposes described below, that a borrower who receives a discharge based on an application supported by an SSA notice of award for SSDI or SSI benefits would still be subject to the three-year post-discharge monitoring period and the borrower responsibilities after discharge. Also, because a borrower who submits such a notice of award is not required to obtain a physician's certification (the date of which is used as the date of discharge), the date we receive an SSA notice of award for SSDI or SSI benefits is the earliest possible date we can use to discharge a borrower's loan without the benefit of the physician's certification date that is contained in the borrower's TPD application under the current process and which we use as the official TPD discharge date if the Secretary approves the borrower's application. We are making conforming changes throughout the Perkins, FFEL, and Direct Loan regulations to reflect the use of the SSA notice of award for SSDI or SSI benefits in the process.

In accepting the SSA notice of award for SSDI or SSI benefits, we must also preserve the integrity of the TPD process. In the past, we have not used the SSA's SSDI and SSI disability determinations in the TPD discharge process because the SSA's decisions on whether to do a disability review are not binding on the agency. As stated above, the SSA, with some exceptions, conducts an immediate continuing disability review if there is any evidence that raises a question as to whether an individual's disability continues. These exceptions, in 20 CFR 404.1590(h) and (i) and 20 CFR 416.990(h) and (i), are crafted narrowly—for example, if an individual is working and has received SSDI benefits for at least 24 months, the SSA will not start a continuing disability review based solely on an individual's activity if he or she is currently entitled to widow's or widower's insurance benefits based on disability. To maintain the integrity of the TPD process when accepting an SSA notice of award for SSDI or SSI benefits indicating that a borrower's medical review will be conducted in five to seven years as proof of a borrower's disability for title IV discharge purposes, we are adding a provision to the Perkins, FFEL, and Direct Loan program regulations requiring the reinstatement of a borrower's obligation to repay a loan that was discharged due to TPD if, within three years after the date the discharge was granted, the borrower receives a notice from the SSA indicating that the borrower is no longer disabled or that the borrower's continuing disability review will no longer be the five- to seven-year period contained in the SSA notice of award for SSDI or SSI benefits. This reflects the fact that any continuing disabilityreview done less frequently than five to seven years indicates a change in the borrower's permanent disability status. We are also adding §§ 674.61(b)(7), 682.402(c)(7), and 685.213(b)(8) to require borrowers, during the three-year monitoring period following the date the borrower's loan is discharged, to promptly notify the Secretary if the borrower receives a notice from the SSA indicating that the borrower is no longer disabled or that the borrower's continuing disability review will no longer be the five- to seven-year period contained in the SSA notice of award for SSDI or SSI benefits. Again, this would indicate that the SSA has changed the borrower's classification of impairment from permanent impairment-medical improvement not expected to another status.

We do not agree with the commenter who recommended that the Department consider borrowers eligible for a TPD discharge if the borrower was determined by the SSA to be eligible for disability benefits with a continuing disability review schedule of every three years. This review schedule represents the status of nonpermanent impairment under which medical improvement is possible. We do not believe this SSA status rises to the level of severity required to meet the Department's definition of total and permanent disability because this status does not result in death or meet the disability longevity standards in the HEA. If, however, a borrower can provide documentation proving that he or she has been in this nonpermanent impairment status for at least five years, we will consider such evidence in determining whether the borrower has engaged in any substantial gainful activity for a period of at least 60 months (five years) under our current TPD standards. Of course, we will continue to accept TPD applications from borrowers under our current process that requires the borrower's application to contain a certification by a physician, who is a doctor of medicine or osteopathy legally authorized to practice in a State, that the borrower is TPD as defined in Department of Education regulations. Thus, a borrower who has not received an SSA notice of award for SSDI or SSI benefits may still be eligible for a TPD under other provisions of these final regulations.

Lastly, sections 437(a)(2) and 464(c)(1)(F)(iv) of the HEA authorize the Department to accept disability determinations from the VA when making the determination that a title IV borrower is eligible for a TPD discharge. The HEA does not specifically authorize the Department to accept SSA disability determinations but rather gives the Secretary the authority to provide the appropriate safeguards with regard to TPD. We believe that allowing borrowers to submit an SSA notice of award for SSDI or SSI benefits indicating a five- to seven-year review period as proof of the borrower's TPD in conjunction with other applicable Department regulations provides these safeguards, and, for the reasons explained in this section, is consistent and aligns with the statutory language in the HEA. This change with regard to SSA determinations will further streamline and simplify the TPD process and ease regulatory burden for both applicants and the Department.

Changes:We are making conforming amendatory changes throughout the Perkins, FFEL, and Direct Loan final regulations to incorporate the use of an SSA notice of award for SSDI or SSI benefits in the process of determining whether borrowers have a TPD for the purposes of the discharge of their title IV loans. Specifically, we are providing in §§ 674.61(b)(2)(iv), 682.402(c)(2)(iv), and 685.213(b)(2) that a borrower may submit an SSA notice of award for SSDI or SSI benefits indicating that the borrower's next scheduled disability review will be within five to seven years as proof of the borrower's TPD.

We are also providing in §§ 674.61(b)(3)(i), 682.402(c)(3)(i), and 685.213(b)(4)(i) that if, after reviewing a borrower's completed application, the Secretary finds that the SSA notice of award for SSDI or SSI benefits indicates that the borrower has a permanent disability, the borrower is considered TPD as of the date the Secretary received the SSA disability notice of award. Final §§ 674.61(b)(3)(iii) and 682.402(c)(3)(iii) provide that in notifying the borrower's lenders that the borrower has been approved for a TPD discharge, the Secretary includes the date the Secretary received the SSA notice of award for SSDI or SSI benefits. Final §§ 674.61(b)(3)(v), 682.402(c)(3)(iii), and 685.213(b)(4)(iii) provide that any payments on a loan received after the date the Secretary received the SSA notice of award for SSDI or SSI benefits are returned to the person who made them. Final §§ 674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv) state that if the SSA notice of award for SSDI or SSI benefits provided by the borrower does not support the conclusion that the borrower is TPD, the Secretary notifies the borrower and the lender that the discharge has been denied. We are amending §§ 674.61(b)(4), 682.402(c)(4), and 685.213(b)(5) to provide that if a borrower received a title IV loan or TEACH grant before the date the Secretary received the SSA notice of award for SSDI or SSI benefits and a disbursement of that loan or grant is made during the period from the date the Secretary received the SSA notice of award until the date the Secretary grants a TPD discharge, the processing of the discharge application will be suspended until the borrower returns the disbursement. We are amending §§ 674.61(b)(5), 682.402(c)(5), and 685.213(b)(6) to provide that if a borrower receives a disbursement of a new title IV loan or receives a new TEACH grant made on or after the date the Secretary received the SSA notice of award for SSDI or SSI benefits and before the date the Secretary grants a discharge, the Secretary denies the discharge application and collection resumes on the loans. We are amending §§ 674.61(b)(7), 682.402(c)(6), and 685.213(b)(7) to provide that the Secretary reinstates a borrower's obligation to repay a loan that was discharged due to TPD if, within three years after the date the discharge was granted, the borrower receives a notice from the SSA indicating that the borrower is no longer disabled or the borrower's continuing disability review will no longer be the five- to seven-year period contained in the SSA notice of award for SSDI or SSI benefits. We are amending §§ 674.61(b)(7), 682.402(c)(7), and 685.213(b)(8) to require borrowers, during the three-year monitoring period following the date the borrower's loan is discharged, to promptly notify the Secretary if the borrower received a notice from the SSA indicating that the borrower is no longer disabled or the borrower's continuing disability review will no longer be the five- to seven-year period contained in the SSA notice of award for SSDI or SSI benefits. Lastly, we are amending § 682.402(c)(8) to require that once the Secretary approves the borrower's TPD application, and the lender receives a claim payment from the guaranty agency, the lender must return to the sender any payments received by the lender after the date the Secretary received the SSA notice of award for SSDI or SSI benefits.

Borrower Representatives (34 CFR 674.61(b)(1), 682.402(c)(1), and 685.213(a)(4))

Comments:One commenter expressed support for the regulations in §§ 674.61(b)(1)(ii), 682.402(c)(1)(iv)(A), and 685.213(a)(4) that provide for a borrower's or veteran's representative to act on behalf of the borrower or veteran, but noted that the regulations refer to a representative as an “individual.” The commenter asked if the representativecould be a law firm or a legal aid society rather than an individual. The commenter noted that personnel at law firms or legal aid societies change, and it would reduce burden on the borrower if the borrower or veteran did not have to authorize a different individual as a representative as a result of a personnel change at a law firm or legal aid society.

Another commenter asked whether the authorization of a representative had to come from the borrower or veteran. This commenter asked whether a court could authorize a representative to act on behalf of the borrower or veteran.

A third commenter expressed concerns over the Department's current process for sending notices to borrowers' representatives. In this commenter's experience, the Department does not consistently send notices to borrower's representatives. The commenter urged the Department to improve the process for sending such notices as soon as possible.

Discussion:Under the regulations as proposed and finalized, an “individual” could include a law firm or legal aid society authorized to act on the borrower's or veteran's behalf without identifying a specific individual within that law firm or legal aid society as the representative. We agree that the authorization could be provided through such means as a Power of Attorney or a court order. The Department will review the validity of such authorizations on a case-by-case basis to determine if the authorization meets applicable legal requirements.

Since October 1, 2010, the Department has taken steps to identify TPD discharge requests in which the borrower listed a representative. When the borrower lists a representative, we send notices related to the TPD discharge application to those borrower representatives, as well as to the borrowers. The Department will continue to do so under the new TPD discharge process. Borrowers who submitted TPD applications prior to October 1, 2010, may request that a borrower representative be added to their account at any time.

Changes:None.

Disability Discharge Application Process (34 CFR 674.61(b)(2), 682.402(c)(2), and 685.213(b))

Comments:One commenter recommended that all of a borrower's loan holders be notified of a borrower's request for a TPD discharge after the borrower submits a single TPD discharge application.

Another commenter recommended that if one lender discharges a borrower's loans due to TPD, all of the borrower's other title IV loans should be automatically discharged.

One commenter recommended that we streamline what the commenter described as an “extremely daunting” application process for TPD discharges. Similarly, another commenter requested that the Department make it easier for borrowers with disabilities to seek TPD discharges.

Discussion:The Department appreciates the concerns expressed by the commenters regarding the current TPD discharge process. Consistent with the NPRM, these final regulations reflect the recommendations made by the commenters. Sections 674.61(b)(2), 682.402(c)(2), and 685.213(b) establish a single application process in which the borrower will submit one TPD discharge application to the Department. The Department has one contractor employed to handle TPD discharges and that servicer will be the sole office receiving these TPD discharge applications. Once the Department is notified that the borrower intends to apply for a TPD discharge, we will notify all of the borrower's title IV loan holders and instruct them to suspend collection activity on the borrower's loans for 120 days. If the Department determines that the borrower qualifies for a TPD discharge, the Department will notify all of the borrower's title IV loan holders and instruct them to assign the borrower's loans to the Department. After the Department accepts the loan assignments, the Department will discharge the loans unless the processing of the discharge request is suspended or denied under § 674.61(b)(4), 674.61(b)(5), 682.402(c)(4), 682.402(c)(5), 685.213(b)(5), or 685.213(b)(6). We believe that the streamlined disability discharge application process will alleviate many of the difficulties borrowers have encountered in applying for TPD discharges.

Changes:None.

Comments:Sections 674.61(b)(2)(ii) and 682.402(c)(2)(ii) of the Perkins and FFEL regulations specify that if a borrower notifies the Secretary that the borrower intends to apply for a TPD discharge, the Secretary provides the borrower with the information needed to apply for the discharge and informs the borrower that the suspension of collection activity will end after 120 days if the borrower does not submit the TPD discharge application within that timeframe. One commenter noted that these requirements were not included in proposed § 685.213(b)(1), the comparable section of the Direct Loan regulations, and asked if there was a specific reason for the difference.

Discussion:The Department will provide the same information and notifications required under the Perkins and FFEL regulations to Direct Loan borrowers. We agree that to provide consistency with the Perkins and FFEL regulations these requirements should be included in the Direct Loan regulations as well.

Changes:We have revised § 685.213(b)(1) of the Direct Loan regulations to state that the Secretary will provide borrowers with the information needed to apply for a TPD discharge and inform the borrower that collection will resume on the borrower's loan after 120 days if the borrower does not submit a TPD discharge application.

Comments:One commenter recommended that the Department grant TPD discharges retroactively as of the application date, so that both voluntary and involuntary payments made after that date would be refunded to the borrower.

Discussion:Sections 674.61(b)(3)(i)(A), 682.402(c)(3)(i)(A), and 685.213(b)(4)(i)(A) specify that if the Department determines that the borrower is totally and permanently disabled, the borrower is considered totally and permanently disabled “as of the date the physician certified the borrower's application.” It is more beneficial to the borrower to use the physician certification date than the application date, because the physician certification date is earlier than the application date.

Changes:None.

Suspension of Collection Activity (34 CFR 674.61(b)(2)(ii)(C), 674.61(b)(2)(vi), 682.402(c)(2)(ii)(C), 682.402(c)(2)(vi), 685.213(b)(1) and 685.213(b)(3)(i))

Comments:One commenter recommended that the Department cease collection on a borrower's title IV loans upon receipt of a TPD discharge application. Another commenter recommended that the Department confirm that the indefinite suspension of collection activity—which occurs after the Secretary receives the borrower's TPD discharge application—is not dependent on whether the application is complete. A similar comment stated that it is not clear how incomplete applications received after the 120-day suspension of the collection period are treated. This commenter gave an example in which a borrower submits an incomplete application on day 119 of the suspension of collection activity, but does not file the complete application until day 130. The commenter asked if, under those circumstances, collection activity would resume on day 121, or if the incompleteapplication would be sufficient to keep the suspension of collection in place.

One commenter also noted that §§ 674.61(b)(2)(ix), 682.402(c)(2)(ix), and 685.213(b)(3) describe the contents of the notice that the Department sends to the borrower upon receipt of the disability discharge application. This commenter asked if this notice is sent for incomplete applications, or if it is only sent once the borrower has submitted a completed application.

In addition, some commenters recommended that Treasury Offset Program (TOP) offsets and administrative wage garnishment (AWG) collection activity on the loan cease during the suspension of collection activity.

Discussion:The final regulations in §§ 674.61(b)(2)(ii)(C), 682.402(c)(2)(ii)(C), and 685.213(b)(1) provide that the 120-day suspension of collection begins on the date the borrower notifies the Secretary of the borrower's intent to apply for a TPD discharge. Collection ceases based on a borrower's notification to the Secretary—which could be a verbal notification—and does not require submission of an application.

The Secretary notifies the lenders of the second, indefinite period of suspension of collection activity after the Secretary receives the TPD discharge application, as specified in §§ 674.61(b)(2)(vi), 682.402(c)(2)(vi), and 685.213(b)(3)(i). If the application is incomplete, the Secretary contacts the borrower, or the physician who certified the application, and asks for the missing information, as provided by §§ 674.61(b)(2)(vii), 682.402(c)(2)(vii), and 685.213(b)(3)(ii). The second, indefinite suspension of a collection activity is not dependent on the TPD discharge application containing all of the information needed for the Secretary to conduct the eligibility review, as more detailed medical information regarding the borrower's disability may be collected during the period of suspension of collection activity. However, the application must contain sufficient information for the Secretary to begin review of the application, such as the borrower's identifying information, physician's contact information, and the physician certification required under §§ 674.61(b)(2)(iv), 682.402(c)(2)(iv), and 685.213(b)(2)(i). The application must be provided to the Secretary within 90 days of the date the physician certifies the application under §§ 674.61(b)(2)(v), 682.402(c)(2)(v), and 685.213(b)(3). If the application arrives without the physician certification or certification date, the Secretary cannot determine if the 90-day requirement has been met. An application missing this information would not meet the requirements of §§ 674.61(b)(2)(vi), 682.402(c)(2)(vi), or 685.213(b)(3).

Borrowers who file a TPD discharge application will receive a different notice depending on whether collection activity is suspended. Thus, if the application does not meet the basic requirement of including a physician certification and certification date (unless the borrower submits an application that includes acceptable VA or SSA documentation as proof of the borrower's TPD), the borrower would receive a notice informing the borrower that suspension of collection will not continue. The borrower would receive a notice requesting the missing information, and notifying the borrower that collection activity will resume on the loan if the information is not provided before the end of the 120-day period of suspension.

We discussed the effect of the suspension of collection activity on payments collected through AWG and TOP in the NPRM. The Department disagrees with the recommendation that AWG and TOP payments be included in the suspension of collection activity. Borrowers who apply for a TPD discharge must, by definition, be unable to engage in substantial gainful activity. Thus, these borrowers would not be earning wages and would not generally be subject to AWG. With regard to TOP, given the administrative effort and timing issues associated with suspending TOP, we do not believe it is in the best interests of the taxpayers to suspend TOP based solely on the filing of the TPD discharge application. Notifying the Department of the intent to file a TPD discharge request does not necessarily demonstrate that a borrower is TPD. Suspending TOP based on such a notification might encourage frivolous TPD discharge requests submitted solely to suspend TOP. If a borrower's loan account has been certified for TOP, the Secretary or the guaranty agency is not required to stop TOP offsets while the borrower is preparing to submit the TPD discharge application or during the Secretary's review of the TPD discharge request. The Secretary or the guaranty agency may, however, stop or reduce TOP offsets during this period if it believes such action is warranted under the borrower's circumstances.

Changes:None.

Comments:One commenter expressed concern that the notice of suspension of collection activity from the Department might not reach the appropriate office in the case of a multi-campus system with a central collection office. If the notice of suspension is sent to the specific campus, rather than to the central collection office for all of the campuses, the collection office would not know to suspend collection for a borrower who obtained a Perkins Loan for attendance at the school. The commenter noted that the National Student Loan Data System (NSLDS) listing for such a borrower would show the specific campus as the loan holder, not the central collection office.

Discussion:The Department is aware of the issues that may arise with multi-campus systems with a centralized collection office. Under the new TPD discharge process, if a borrower notifies us of the intent to apply for a TPD discharge, we will contact the borrower's title IV loan holders listed on the NSLDS. Unless the loan has been assigned to the Department, the holder of a Perkins Loan is always the school that awarded the loan to the borrower.

As we implement the new streamlined TPD discharge process, the Department will work with multi-campus systems that have centralized collection offices to find strategies to address this problem.

Changes:None.

Comments:One commenter stated that during the negotiated rulemaking sessions non-Federal negotiators proposed modifying the administrative forbearance regulations for the FFEL program to allow guaranty agencies to retroactively grant administrative forbearances to borrowers. This would eliminate delinquencies occurring before the borrower notified the Department of the intent to apply for a TPD discharge. When the Department decided to split the proposed regulations into two separate regulatory packages, the administrative forbearance provision was not included in the NPRM to these final regulations. The commenter noted that including the administrative forbearance provision in a subsequent rulemaking will create a period of time where guaranty agencies will not be able to eliminate a prior delinquency with an administrative forbearance. Delinquent borrowers whose 120-day suspension period expires, or whose TPD discharge application is denied before the effective date of the second set of regulations resulting from these negotiations, will resume repayment after the suspension periods at the same delinquency status. This commenter recommended that the Department provide clear guidance that would allow a borrower to exit a TPD suspension period in a nondelinquent status, regardless of the status of the loan at the time the suspension of collectionactivity began, until the changes to the administrative forbearance regulations are published and are in effect.

Discussion:The NPRM that would contain this revision to the administrative forbearance provisions has not yet been published. Consequently, there has been no opportunity for public comment on an NPRM that includes this revision. The Department believes that it would be inappropriate to establish such an administrative forbearance through subregulatory guidance prior to publication of the proposed regulatory change in an NPRM, receipt of public comment, and publication of a final regulation. In addition, we have no evidence that this has created a significant problem for borrowers seeking TPD discharges under our current regulations.

Changes:None.

TPD Discharge Application Denial and Re-evaluation (34 CFR 674.61(b)(3)(vi), 674.61(b)(3)(vii), 682.402(c)(3)(v), 682.402(c)(3)(vi), 685.213(b)(4)(iv), and 685.213(b)(4)(v))

Comments:One commenter asked if the references in proposed §§ 674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv) to the “certification provided by the borrower” meant the physician's certification on the TPD application form. If so, the commenter asked us to change the reference to the “physician's certification.” The commenter also asked us to make the same change in the corresponding regulations for the veteran's disability discharge process.

Discussion:The references to a “certification provided by the borrower” in proposed §§ 674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv) do refer to the physician certification. We agree with the commenter and have revised these provisions in the final regulations to make this explicit. However, the corresponding language in §§ 674.61(c), 682.402(c)(9), and 685.213(c) covering the veteran's disability discharge process refers to documentation from the Department of Veteran's Affairs not to a physician's certification, and does not need to be revised.

Changes:We have replaced “certification provided by the borrower” with “physician's certification” in §§ 674.61(b)(3)(vi), 682.402(c)(3)(v), and 685.213(b)(4)(iv).

Comments:The proposed regulations in §§ 674.61(b)(3)(vii), 682.402(c)(3)(vi), and 685.213(b)(4)(v) would allow a borrower to request a re-evaluation of the borrower's TPD discharge application within 12 months of receiving the Secretary's decision denying the application. The proposed rules specified that the request for a re-evaluation must include information that was not available at the time of the borrower's prior application. One commenter noted, however, that the information might have been available at the time of the prior application but might not have been included in the application for any number of reasons. The commenter recommended replacing the words “not available” with “not included” for these regulatory provisions.

In addition, commenters asked the Department to confirm that a FFEL or Perkins loan holder will not provide a new period of suspension of collection activity during the re-evaluation period, unless advised otherwise by the Department.

Discussion:We agree with the recommendation to revise the language, although, since detailed information is not included in the TPD discharge application itself, we have revised the new language.

In response to the second comment noted above, we confirm that the borrower does not receive a second period of suspension when a TPD discharge is being re-evaluated.

Changes:We have replaced “not available” with “not provided to the Secretary in connection with the prior application” in §§ 674.61(b)(3)(vii), 682.402(c)(3)(vi), and 685.213(b)(4)(v) of the final regulations.

Treatment of Disbursements of Title IV Loans and TEACH Grants or Receipt of New Title IV Loans and TEACH Grants After Date of Physician's Certification (34 CFR 674.61(b)(4) and (b)(5), 682.402(c)(4) and (c)(5), and 685.213(b)(5) and (b)(6))

Comments:The proposed regulations in §§ 674.61(b)(4), 682.402(c)(4), and 685.213(b)(5) stipulated that if a borrower receives a title IV loan or TEACH grant before the date the physician certified the TPD discharge application, and disbursement of the loan or grant is made after the date of the physician's certification and before the date the loan is discharged, the processing of the discharge request is suspended until the borrower returns the disbursement. One commenter noted that this regulatory requirement could be easily misunderstood. The commenter asked the Department to clarify what it means by a borrower “receiving” a loan or grant prior to the loan or grant being disbursed. The commenter asked if this requirement refers to a loan that is partially disbursed before the physician's certification, and a subsequent disbursement is made after the date of the certification. Alternatively, the commenter asked if by “received” the Department means originated or awarded.

Discussion:The commenter's second interpretation is correct. In the context of these regulations, we are referring to a situation in which the loan or grant has been originated or awarded prior to the physician certification date. The provision is intended to apply to situations in which a student has established eligibility for a title IV loan or TEACH grant, the loan or grant is approved, and the process for disbursing the funds has started. The Department believes that a student in this situation should not be denied the TPD discharge. However, the student must return the disbursed funds before the TPD discharge may be granted.

Changes:None.

Comments:The proposed regulations in §§ 674.61(b)(5), 682.402(c)(5), and 685.213(b)(6) provided that if a borrower receives a disbursement of a new title IV loan or receives a TEACH grant made on or after the date the physician certified the TPD discharge application, the Department denies the TPD discharge application and collection resumes on the borrower's loans. One commenter asked if this refers to situations in which a title IV loan or TEACH grant was originated or awarded on or after the date of the physician's certification and is disbursed before the date the discharge is granted.

Discussion:The commenter's understanding of the provision is correct. This provision is intended to address borrowers who actively request or apply for a new title IV loan or TEACH grant after the date of the physician's certification. In applying for a loan or requesting a TEACH grant the student commits to repay the loan or perform the required teaching service. This commitment contradicts the borrower's claim in the TPD discharge application that the borrower is too disabled to work. Borrowers seeking a discharge on existing loans while taking out new loans should not receive the benefit of a TPD discharge.

Changes:None.

Conditions for Reinstatement of a Loan and Borrower's Responsibilities After a Total and Permanent Disability Discharge (34 CFR 674.61(b)(6), 674.61(b)(7), 682.402(c)(6), 682.402(c)(7), 685.213(b)(7), and 685.213(b)(8))

Comments:The regulations in §§ 674.61(b)(6)(i)(A), 682.402(