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46974

Federal Register / Vol. 86, No. 160 / Monday, August 23, 2021 / Rules and Regulations
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Department are handled by the Departments FOIA Service Center.
Changes: None.
Comment: One commenter suggested that VA should be more involved in communicating to veterans regarding the discharge process. The commenter was concerned that some veterans might think the discharge letter was too good to be true since it was not something they had asked for. The commenter stated that if VA were more involved in the process, it might be able to confirm the validity of the letter and assist veterans in understanding the ramifications of allowing the discharge to go forward versus opting out of the discharge.
Discussion: The Department plans to work closely with VA in implementing these regulations. However, we believe that the notification of eligibility for the TPD discharge should come from the Department, not VA. The notification relates to student loan programs administered by the Department, not to any VA benefit program. If a borrower has questions about the notification, the borrower should contact the Department, not VA.
Changes: None.
Opt-Out Provision 674.61e1, 682.402c11i, 685.213e1
Comment: One commenter was concerned that the automatic discharge process could harm a veteran who is enrolled in school and obtaining loans and recommended that the Department include the opt-out provision discussed in the preamble to the IFR.
Another commenter urged the Department to consider the moral hazard of lending to a borrower who has been deemed unable to work prior to or concurrent with enrollment.
Discussion: As suggested by the first commenter, a veteran who is enrolled in school and receiving loans might wish to opt out of the automatic discharge so that the veteran could continue receiving loans without having to meet the additional eligibility requirements that apply to borrowers seeking new loans after having previously received a TPD discharge of earlier loans. We agree with the first commenter that we should include the opt-out provision in the regulatory language.
We do not agree with the commenter who suggested that providing an opt-out provision creates a moral hazard that is sufficiently worrisome to outweigh the benefits of providing automatic discharges. As noted in the Regulatory Impact Analysis the opt out rate for borrowers identified through the VA
process was just four percent through the two rounds of discharges processed
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since September 2019. This suggests the opt out is used in rare circumstances and is not a widespread practice that would indicate a significant moral hazard. Veterans who qualify for automatic TPD discharges, as well as recipients of SSDI and/or SSI benefits, should have the ability to decline the discharge without fear that declining the discharge will affect their ability to continue to obtain Federal student loans.
Changes: In 674.61e1, 682.402c11i, and 685.213e1, we have specified that the notification to a borrower of eligibility for an automatic TPD discharge informs the borrower that the borrower may opt out of the discharge. We have revised 674.61e5, 682.402c11vii, and 685.213e3 to clarify that, if borrowers choose not to receive the automatic TPD
discharge, they remain responsible for repaying the loan in accordance with the terms and conditions of the promissory note that the borrower signed.
Post-Discharge Monitoring Period Comments: One commenter urged the Department to make it clear to borrowers that if they accept the TPD
discharge, there will be a monitoring period that may prevent the borrower from receiving loans in the immediate future, and that these borrowers would need a physicians certification if they are going to use loans to return to school.
Discussion: For TPD discharges based on a disability determination from VA, there is no post-discharge monitoring period. 20 U.S.C. 1087a2. However, under 674.9g1 and 2, 682.201a6i and ii, and 685.200a1ivA1 and 2, once borrowers loans have been discharged due to TPD, they cannot obtain additional Federal student loans unless the borrower 1 obtains a certification from a physician that the borrower is able to engage in substantial gainful activity; and 2 signs a statement acknowledging that any new 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. This information is included in the notice that is sent to veterans informing them that they qualify for a TPD discharge based on data obtained from VA.
For borrowers who receive discharges based on SSA disability determinations, 674.61b3iv, 682.402c3iv, and 685.213b4iii provide that the notification the borrower receives after the discharge has been granted explain
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the terms and conditions of the postdischarge monitoring period. The notice also includes the requirements for obtaining a new loan discussed above.
Changes: None.
Defaulted Borrowers Comments: Commenters noted that the loans of many veterans who qualify for a TPD discharge are in default. The commenters asserted that in some cases the loans were wrongly placed in default, because the borrower met the eligibility criteria for a TPD discharge at the time the loan was placed in default.
Discussion: It is possible that some veterans who defaulted on their loans may have qualified for TPD discharge if they had submitted a discharge application. However, the Department would not have known at the time the loans defaulted that the veterans with loans described in this example were eligible for a TPD discharge. Prior to the implementation of the process that enables the Department to identify borrowers who are determined to be eligible for TPD discharge based on data obtained from VA, the Department and loan servicers had no means of knowing that a disabled veteran qualified for discharge unless the borrower submitted a TPD discharge application. If such a borrower became delinquent in making payments on a loan, and did not apply for forbearance, deferment, or discharge, or take other actions to resolve the delinquency, the loan would eventually be placed in default, in accordance with the terms and conditions of the promissory note that the borrower signed. Preventing this situation is a major reason the Department automated the process of discharges without the need for an application. The automated process will seek to avoid such an outcome for a borrower who is eligible for a TPD discharge.
Changes: None.
Return of Offset or Garnished Funds Comments: Commenters asked that any offsets from a defaulted borrowers benefits that were taken to pay on their defaulted loans be returned to them, and their credit reports updated, if the borrower receives an automatic TPD
discharge.
Discussion: Any payments received on or after the effective date of VAs disability determination or the date the Secretary received disability data from the SSA are returned to the person who made the payments. This includes any payments that were obtained through offsets.
Section 674.61c4ii requires a school that holds a Perkins Loan to return the payments. Section
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