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Business and Policy Areas
Business and Policy Areas

ED Updates Loan Program Rules

November 15, 2013

On November 1, the Department of Education issued final rules updating its regulations for the Federal Direct Loan, the Federal Family Educational Loan (FFEL), and the Federal Perkins Loan programs. The majority of the changes are technical in nature and intended to update the regulations in light of the 2010 transition to the Direct Loan program and the end of new lending through the bank-based FFEL program. The regulations also strive to ensure consistency across the three programs, to the extent supported by statutory requirements.

In general, the new rules will take effect on July 1, 2014. ED has provided some flexibility to loan holders, including institutions participating in the Perkins Loan program, to adopt a number of the provisions earlier.

Perkins Loan Program

Because institutions manage the Perkins Loan program directly, business officers will find these changes of direct interest.

Satisfactory Repayment Arrangements. The new regulations clarify the requirements for rehabilitating defaulted loans and strive for consistency across the three federal loan programs. A borrower with a defaulted federal loan may regain eligibility for additional Title IV assistance if he or she has made satisfactory arrangements to repay the loan. Under current rules, satisfactory arrangements are defined as making six consecutive, on-time, monthly payments. The FFEL and Direct Loan rules, however, set more specific requirements for satisfactory repayment arrangements than the Perkins Loan rules. The revised rules for Perkins at §674.2 now specify that the six payments must be:

  • Voluntary; that is, made directly by the borrower and not through garnishment or tax offsets.
  • In full.
  • On-time; defined as within 20 days of the scheduled due date [a corresponding change was also made to the loan rehabilitation rules found at §674.39(a)(2).]

In addition, the rules at §674.2(b) now clarify that a student who makes six payments while rehabilitating a defaulted Perkins loan, but does not apply for additional Title IV aid at that time, will not be considered to have used his or her one-time opportunity to regain eligibility. The same change was also made to the FFEL and Direct Loan rules.

Enrollment Status Reporting. The new rules update the requirements for reporting borrowers' enrollment status to reflect current practices and remove obsolete references. Long-required for FFEL and Direct Loan borrowers, reporting will now be extended to cover Perkins Loan borrowers as well in a new §674.61(f). ED began including Perkins borrowers in the National Student Loan Data System (NSLDS) enrollment reporting file sent to schools in June 2012. Institutions participating in Perkins and their servicers are invited to enroll with NSLDS to access information on their borrowers.

Deferments. The final rules eliminate the debt-to-income hardship category for deferments in current §674.34(e)(4), which was inadvertently left in the Perkins regulations after being removed from the FFEL and Direct Loan rules in 2008 following a statutory change. This will bring the Perkins rules in line with current law and the other programs. Another change to the deferment rules, also intended to increase consistency across the loan programs, extends the eligibility requirements for graduate fellowship deferments that are currently used for FFEL and Direct Loans to Perkins Loan borrowers under §674.34(f). The new standards are more detailed than the current rules, which only require certification from the borrower that he or she is engaged in full-time study in a graduate fellowship program. With the new rules, the borrower must provide a statement from an authorized official of the program certifying that the borrower holds a baccalaureate degree, has been accepted or recommended for acceptance in an eligible fellowship program on a full-time basis, and his or her anticipated completion date. The regulations go on to define an eligible fellowship program.

Loan Cancellations. The rules provide new leniency for borrowers working toward loan cancellations for teaching or public service who encounter health-related difficulties, and they provide guidance for institutions when a borrower moves from one type of cancellation benefit to another. Institutions may choose to implement these changes as early as November 1, 2013.

Under current Perkins regulations, if a borrower's year of service in a qualified teaching position is interrupted during the second half of the year due to illness or pregnancy, the year will still count for cancellation purposes if the employer considers the borrower to have fulfilled his or her contract for the academic year. There are no provisions for partial years of service for other types of service eligible for cancellation. The revised regulations at §674.52(c)(1) would broaden the service interruption provision to include both other types of eligible public service and any condition covered by the Family and Medical Leave Act as an allowable reason for the borrower's failure to complete the year of service. The FMLA change conforms to the criteria used for the FFEL and Direct Loan programs.

A new paragraph added to the regulations at §674.52(g) provides instructions on how to handle the progression of cancellation percentages when borrowers move between the various categories of eligible occupations. Borrowers who move between cancellation categories that follow the same rate schedule (§674.53 for teachers; §674.56 for nursing, early intervention, fire fighters, and others; §674.57 for law enforcement and corrections officers; and §674.59 for military service) will continue in the progression without starting over at year one. However, if a borrower switches from one of those cancellation categories to the ones in §674.58 (for early childhood education) or §674.60 (for volunteer service), the rate progression will begin again at year one because these provisions call for a different cancellation rate.

Assignment to ED. Current rules don't allow institutions to assign loans to the Secretary of Education without the borrower's Social Security number. The new rules at §674.50(e)(1) will allow assignment without an SSN if the loan was made before September 13, 1982, the date when ED required schools to include the SSN on the promissory note. 


Anne Gross
Vice President, Regulatory Affairs