Session #63 FFEL Regulatory and Policy Update Pamela Moran Office of Postsecondary Education

Session #63

FFEL Regulatory and Policy Update

Pamela MoranOffice of Postsecondary

Education

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Agenda

• Legislation

• Negotiated Rulemaking- Loans Regulations

• Other Regulations • FFELP Forms

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Legislation

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Reauthorization of the Higher Education Act

• Third Higher Education Extension Act of 2007 (S.2258)–Extends the Higher Education Act through March 31, 2008

• Senate Reauthorization Bill-S.1642

• House Reauthorization Bill-H.R. 4137

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Other Legislation

• HEROES Act – Reauthorized and made permanent –September 30, 2007 (P.L. 110-93)

• College Cost Reduction and Access Act of 2007 – September 27, 2007 (P.L. 110-84)

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College Cost Reduction and Access Act of 2007 - Budget Reconciliation

Loan forgiveness for:• Public service employees• Non-defaulted Direct Loan borrowers

only • Balance of principal and interest

forgiven after 120 payments made after 10/1/2007

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• FFEL-only borrowers authorized to seek DL Consolidation for this purpose –effective July 1, 2008

• Included reconsolidation of existing FFEL Consolidation Loan

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• Must repay under any combination of: - income-based repayment - income-contingent repayment - 10-year standard repayment - any DL repayment based on 10-year

repayment amounts

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• Must be employed in public service during 120-payment period

• Must be employed in public service job at time of forgiveness

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College Cost Reduction and Access Act of 2007- Budget Reconciliation

Public Service Jobs Include:• Full-time job in government or

emergency management• Military service• Public safety• Public health

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•Public education (including early childhood education)

•Law enforcement•Public interest law services (including prosecution or public defense or legal advocacy in low-income communities at a non-profit organization)

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College Cost Reduction and Access Act – Budget Reconciliation

• Public child care

• Public service for the elderly and disabled

• School-based library science and other school-based services

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College Cost Reduction and Access Act – Budget Reconciliation

• Service at a 501(c)(3) organization

• Full-time faculty at a Tribal college and in other high-needs areas determined by ED

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• Creates new Income-Based repayment plan for FFEL and DL borrowers (other than parent PLUS)-effective July 1, 2009

• Creates partial financial hardship deferment

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• Partial financial hardship = annual repayments exceed 15% of AGI minus 150% of poverty line based on family size based on standard 10-year repayment

• Unpaid amounts forgiven after 25 years

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• New economic hardship covers borrowers with income not exceeding 150% of poverty line applicable to the borrower’s family size –effective October 1, 2007

• Debt-to-income standard retained

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• Reduces subsidized undergrad Stafford Loan Interest Rates in FFEL and Direct Loan Programs:–6% for loans first disbursed 7/1/2008-6/30/2009

–5.6% for loans first disbursed 7/1/2009 – 6/30/2010

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• Reduces subsidized undergrad Stafford Loan Interest Rates in FFEL and Direct Loan Programs:–4.5% for loans first disbursed 7/1/2010 – 6/30/2011

–3.4% for loans first disbursed 7/1/2011 – 6/30/2012

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• HERA Military Service Deferment Amended- Effective 10/1/2007–Eliminates 3-Year Limit –Extends deferment for 180-days after demobilization

–Covers all title IV loans, not just loans disbursed on/after 7/1/2001

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• New Military Deferment for 13 months after service for-effective 10/1/2007: –National Guard, Reserve, and Retired Military Personnel Called to Active Duty

–Enrolled or enrolled within 6 months of activation

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• Parent PLUS Auction Authorized

• FFEL Parent PLUS Loans for new borrowers beginning July 1, 2009

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• State-based auction every 2 years

• Origination rights limited to 2 lowest bidders

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• Bids based on lender special allowance rate (SAP)

• Winning lender must make PLUS loans available to each parent of a

dependent attending school in the State

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• Secretary selects parent PLUS lender-of-last-resort (LLR) for each state

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• Reduction in loan holder special allowance rate (SAP)

• Effective for loans first disbursed on or after October 1, 2007

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• Different reductions for “for profit” and “not-for-profit” loan holders

• “For profit”: -- Stafford and Consolidation 0.55% Reduction -- PLUS (incl. Grad PLUS) 0.85% reduction

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•“Not-for-profit” -- Stafford and Consolidation 0.40% reduction -- PLUS (incl.Grad PLUS) 0.70% reduction

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• Must be acting as “not-for-profit” on date of enactment unless waived by State

• “Not-for-Profit” defined as: -- a State, or a political subdivision,

authority, agency, or instrumentality of State

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-- Entity described under section 150(d)

of IRS Code

-- Entity described under section 501 (c)(3) of IRS Code

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-- Eligible lender trustee acting on behalf of State, other State-related entity, or 150(d)(2) or 501(c)(3) entity

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• Lender Default Insurance Reduced

• Loans first disbursed on/after October 1, 2012

• Reduced from 97% to 95%

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• Exceptional Performer Status Eliminated

• Effective for lenders/lender servicers on October 1, 2007

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• Reduces GA account maintenance fee from 0.10% to 0.06%- payments received on/after October 1, 2007

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• Reduces GA default collection retention to 16% - payments received on/after October 1, 2007

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2006-2007Negotiated Rulemaking

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Four Negotiating Teams –

• Loans – NPRM 8/7/07• ACG/National Smart – NPRM

8/7/07• General Provisions NPRM 8/8/07• Accreditation – No Regulations

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LOANS NPRM

• “No Consensus” on NPRM

• NPRM reflected what ED heard and deliberations of Secretary’s Loan Task Force

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Regulations Calendar

• NPRM: June 12, 2007• Deadline for Comments: August 13, 2007 • 241 Comments Received

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Regulations Calendar

• Final rules: no later than November 1, 2007

• Effective date: July 1, 2008 with possible early voluntary implementation

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Loans Issues -All• Simplification of

the Deferment Process

• Accurate & Complete Copy of Death Certificate

• Total and Permanent Disability

• NSLDS Reporting

• Certification of Electronic Signatures

• Record Retention on MPNs

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Loans Issues – FFEL/DL

• Maximum Loan Period • Identity Theft• Grad/Prof PLUS Loan Counseling

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Loans Issues – FFEL

• Prohibited Inducements • Use of Preferred Lenders• FFEL Loan Certification• Frequency of Capitalization• Eligible Lender Trustees (ELTs)

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Loans Issues - Perkins• Mandatory Assignment of

Defaulted Loans • Reasonable Collection Costs

Definition • Child and Family Services

Cancellation

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Simplified Deferment Process• §§682.210 and 685.204 allows

deferment based on information from another loan holder or from NSLDS if: –“New” borrower with first loan disbursed on or after July 1, 1993

– Written or verbal deferment request received

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Simplified Deferment Process

–FFEL or Direct Loan deferment already granted for same reason and same period

–Loan holder has no conflicting information on borrower’s eligibility

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• Notice to borrower required

• FFEL and Direct Loan deferment may be granted only for Economic Hardship based on Perkins Loan deferment

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Simplified Deferment Process• §§682.210 and 685.204 amended to

allow military service or armed forces deferment based on:

- request of borrower or borrower’s representative

- documentation establishing borrower eligibility

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• Required notice to the borrower and borrower’s representative, if applicable, that the deferment has been granted

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Accurate and Complete Copy of a Death Certificate

• §682.402 for death discharges amended to allow use of an accurate and complete photocopy of a borrower’s death certificate

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Accurate and Complete Copy of a Death Certificate

NOTE:“exceptional circumstances” discharge by chief executive officer based on “other reliable information” unchanged

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Total and Permanent Disability Discharges

• Regulations governing TPD discharges restructured in §682.402

• Eligibility requirements and the

discharge process clarified

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Total and Permanent Disability Discharges• Regulations: -Require TPD application submission within 90 days of date certified by physician

–Define borrower’s TPD date as physician’s certification date

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Total and Permanent Disability (TPD) Discharges

–DO NOT disqualify the borrower for final discharge based on Title IV loans or earned income before the TPD date

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-DO disqualify the borrower for final discharge based on Title IV loans from TPD date until date of Secretary’s initial TPD determination and during the conditional discharge period

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–Make the Conditional Discharge Period a 3-year prospective period from TPD date

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Total and Permanent Disability (TPD) Discharges • Regulations: -Allow minimal earned income

during conditional discharge period (no Title IV loans)

-Require notice to borrower that no payments on loan are due during the discharge process

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–Require only return of loan payments made after the TPD date (date of physician certification of disability)

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NSLDS Reporting Requirements

• §§682.208, 682.401 and 682.414 amended to require enrollment and loan status reporting (or any other Title IV-related data required by the Secretary) by Secretary’s established deadline

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• Deadlines to be published in Federal Register Notice or DCL format

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• FFEL guaranty agency enrollment and loan status reporting deadline to loan holders reduced from 60 to 35 days

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Certification of Electronic Signatures on Assigned MPNs

• §§682.409 and 682.414 amended to require loan holders to maintain certification of creation and maintenance of E-MPN process, including borrower authentication and signature process

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• Requires loan holders to retain an original electronically signed MPN for at least 3 years after all MPN’s loans are satisfied

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• Upon Secretary’s request: – loan holder must provide the certification and cooperate in all activities to enforce an assigned loan, including testimony in a legal proceeding

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• Required certification includes:-Description of borrower’s steps in executing the signed MPN–Copy of each screen the borrower saw when signing the MPN electronically

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Certification of Electronic Signatures on Assigned FFEL Loan MPNs

• Required certification includes:

–Description of field edits and other security measures used to ensure data integrity through the loan origination process

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–Description of storage process/systems for signed MPNs to ensure document integrity (no alterations)

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–Documentation supporting the lender’s authentication electronic signature process

–All other evidence required by the Secretary

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• Documents to resolve factual disputes on assigned loans required within 10 business days of ED’s request

• Full and complete access to electronic records required until all MPN-derived loans satisfied

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Record Retention Requirements onFFEL MPNs Assigned to the Department

• §682.409 amended to require a Guaranty Agency to submit lender disbursement records on assigned loans to ED

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Maximum Loan Period

§682.603 and 682.604 amended to:• Eliminate 12-month loan period

maximum • Provide flexibility in non-term and

nonstandard term program loan certification

• Provide flexibility in rescheduling “stop out and return” disbursements within 180-day period.

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Loan Counseling for Grad/Prof PLUS Borrowers

• §682.603 requires, before certifying PLUS, comparative info to eligible Stafford non-applicant:–PLUS/Stafford interest rates, interest accrual periods, and grace periods

• Opportunity for Stafford Loan must be given before receipt of PLUS Loan

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Loan Counseling for Grad/Prof PLUS Borrowers

• Initial counseling required for all PLUS borrowers

• Exit counseling required for Stafford/PLUS combination borrowers

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Use of Eligible Lender Trustees (ELTs) by FFEL Schools

•Lender definition in §682.200 amended to prohibit new ELT relationships with schools on/after September 30, 2006

• §682.602:HERA FFEL school lender limits applied to school ELT arrangements 1/1/2007

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Frequency of Interest Capitalization in FFEL Program

• §682.202 amended to limit frequency of capitalization on Federal Consolidation Loans during in-school deferment period

• Lenders may only capitalize unpaid interest at expiration of deferment period

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Identity Theft Discharge

•HERA provided for a FFEL and Direct Loan discharge if borrower’s loan eligibility was falsely certified due to the crime of identity theft

•Implementing Interim and Revised Final Regulations published in 2006

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Identity Theft Discharge

• §682.402 defines “crime” for discharge as judicial determination by local, State, or Federal court that “crime” of identity theft has occurred and names perpetrator

• Requires individual did not receive or benefit from loan proceeds

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Identity Theft Discharge• No change to existing discharge

eligibility requirements • Upon receipt of valid identity theft

report/notice alleging ID theft, lender may:–suspend credit bureau reporting on a loan for 120 days

–grant a 120-day administrative forbearance

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School FFEL Loan Certification • §682.603 (f) reorganized and

amended • FFEL schools May Not: - Refuse/Delay certification based on choice of lender or GA - Assign lender to first-time borrower in award packaging or through other methods

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School FFEL Loan Certification • Engage in a pattern or practice

of discrimination to deny FFEL access

• Refuse to certify or certify a reduced amount except on a case-by-case, documented basis with reason provided to borrower in writing

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School Preferred Lender List in FFELP

Background:• School’s Option• Allowed But Never Regulated• Evolution:

–Default prevention–Simplification E-transmission –Competition–Proliferation of borrower benefits

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Regulations require:• List must contain at least 3

unaffiliated lenders• “Unaffiliated” means:

–No common control or ownership

–No common directors, trustees, or general partners

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§682.212 requires a school to:• Disclose method/criteria for

lender inclusion on the list• Provide comparative information

on borrower benefits offered by listed lenders –Department to provide model format for school use

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• Include prominent statement advising borrowers that use of the school’s preferred lender not required

• Update at least annually

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School Preferred Lender List in

FFELP Under §682.212, a school MUST

NOT:• Include lenders that were

solicited and provided school or school- employee benefits, but may include lenders solicited for best borrower benefits

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School Preferred Lender List in

FFELP Under §682.212, a school MUST

NOT:• Assign lender to first-time

borrower • Cause any unnecessary delays

in certification for borrowers not using one of the school’s preferred lenders

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FFEL Program Lender and GA Prohibited Inducements

Background:• Enacted as part of 1986

Amendments to HEA• 1998 Amendments to HEA

allowed lenders and GAs to provide assistance to schools comparable to what Secretary provides to Direct Loan schools

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• Affects lender eligibility and participation and GA participation

• Prior regulations primarily reflect statutory provisions

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• Regulations codify current interpretive and clarifying guidance on prohibited inducements and retain Prohibited and Permissible Activities format of 1989 DCL guidance (89-L-189, February 1989)

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• Regulation introduce use of: -- “rebuttable presumption” in

formal enforcement actions

• Expands use of Federal Trade Commission’s (FTC) “Holder Rule” to loans for all schools

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FFEL Program Prohibited Inducements -Lenders• Lender definition in §682.200

forbids an eligible lender, directly or through an agent from:

- Offering directly or indirectly, points, premiums, payments or other inducements to a school or any party to secure FFEL applications or loan volume

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FFEL Program Prohibited Inducements -Lenders Such as:

Payments to prospective borrowers, including prizes and additional financial aid

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FFEL Program Prohibited Inducements - Lenders

Payments or other benefits to a school, school-affiliated organization, or other individual for loan apps, volume of loans, or placement on a preferred lender list

Payment and service on lender advisory boards

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Payments or other benefits to student lender reps on campus or other solicitors to secure loan applications from prospective borrowers

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Payment of referral fees, or processing fees not required to comply with federal or state law, to another lender or other party

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FFEL Program Prohibited Inducements - Lenders Payment of conference or training

registration, transportation, and lodging costs for school or school-affiliated organization employees

Payment of entertainment expenses related to lender-sponsored activities for the same

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Undertaking philanthropic activities in exchange for FFEL applications, volume, or placement on a school’s preferred lender list

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FFEL Program Prohibited Inducements - LendersProviding staffing services to a school, except a foreign school, other than on a short-term, non-recurring emergency basis, including compensated and third-party contractual services

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§682.200 provides that an eligible lender may ONLY provide:

• Assistance to schools comparable to that provided DL schools by the Secretary

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• Support for or participation in student aid/financial literacy outreach with schools and guaranty agencies, except in-person initial and exit counseling

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• Reasonable costs of meals, refreshments, and receptions for meeting, training, or conferences if open to all attendees

• Toll-free numbers for FFEL info and school loan data transmission

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• Reduced origination fees (statutorily authorized)

• Reduced interest rates (statutorily authorized)

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• Payment of Federal Default fees (not statutorily prohibited)

• Borrower benefits under repayment incentive and certain loan forgiveness programs

• Items of nominal value

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FFEL Program Prohibited Inducements – GAs

• §682.401(e) same as lenders, except GAs permitted to pay:

-- travel and lodging expenses related to school employee service on GA advisory or governing board

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FFEL Program Prohibited Inducements – GAs

-- reasonable costs of meals and

refreshments for GA-sponsored training, workshops, and forums permitted

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Negotiated Rulemaking2007-2008

• 2009-10 and subsequent years• Federal Register notice Fall

2007• Regional hearings in Fall 2007• Negotiating committees TBD

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Negotiated Rulemaking2007-2008

• Committees expected to meet January – March 2008

• NPRMS in June 2008• Final regulations by November 1, 2008

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Other Regulations and Forms

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Revised Final Regulations 9/28/07

• Part of HEA Extension – P.L. 109-292• Loan Discharge for 9/11 spouses

and parents • Interim Final Regulations –

December 28, 2006

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Revised Final Regulations 9/28/07

• Revised Final Regulations – September 28, 2007–Spouse of eligible public servant

–Parent of eligible victim–Includes portion of Consolidation Loan

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Forms

MILITARY DEFERMENT (HERA) -Form Posted to IFAP June 11, 2007-GEN-07-04 -Requires CCRAA revisions9/11 DISCHARGE APPLICATION

- Form Posted to IFAP November 9, 2007–GEN-07-08

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Forms• Federal Consolidation Loan Application

and Promissory Note -Form Posted to IFAP 3/12/07 -Requires CCRAA addendum

• PLUS MPN -Form approved by OMB and to be posted to IFAP with CCRAA changes

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Forms

• Federal Stafford MPN -Requires CCRAA addendum

• Teacher Loan Forgiveness – undergoing ED review prior to entering Paperwork Act clearance process

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Contact Information

We appreciate your feedback and comments. We can be reached at:

• Phone:(202) 502-7732• Email: [email protected]• Fax: (202) 502-7873