Session 63 FFEL Regulatory and Policy Update Pamela

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

Agenda • Legislation • Negotiated Rulemaking- Loans Regulations • Other Regulations • FFELP Forms 2

Legislation 3

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 4

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) 5

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 6

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • FFEL-only borrowers authorized to seek DL Consolidation for this purpose –effective July 1, 2008 • Included reconsolidation of existing FFEL Consolidation Loan 7

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • 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 8

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • Must be employed in public service during 120 -payment period • Must be employed in public service job at time of forgiveness 9

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 10

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • Public education (including early childhood education) • Law enforcement • Public interest law services (including prosecution or public defense or legal advocacy in lowincome communities at a nonprofit organization) 11

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 12

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 13

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • Creates new Income-Based repayment plan for FFEL and DL borrowers (other than parent PLUS)-effective July 1, 2009 • Creates partial financial hardship deferment 14

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • 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 15

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • 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 16

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • 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 17

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • 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 18

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • 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 19

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • New Military Deferment for 13 months after service foreffective 10/1/2007: –National Guard, Reserve, and Retired Military Personnel Called to Active Duty –Enrolled or enrolled within 6 months of activation 20

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • Parent PLUS Auction Authorized • FFEL Parent PLUS Loans for new borrowers beginning July 1, 2009 21

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • State-based auction every 2 years • Origination rights limited to 2 lowest bidders 22

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • 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 23

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • Secretary selects parent PLUS lender-of-last-resort (LLR) for each state 24

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • Reduction in loan holder special allowance rate (SAP) • Effective for loans first disbursed on or after October 1, 2007 25

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • 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 26

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • “Not-for-profit” -- Stafford and Consolidation 0. 40% reduction -- PLUS (incl. Grad PLUS) 0. 70% reduction 27

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • 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 28

College Cost Reduction and Access Act of 2007 - Budget Reconciliation -- Entity described under section 150(d) of IRS Code -- Entity described under section 501 (c)(3) of IRS Code 29

College Cost Reduction and Access Act of 2007 - Budget Reconciliation -- Eligible lender trustee acting on behalf of State, other Staterelated entity, or 150(d)(2) or 501(c)(3) entity 30

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • Lender Default Insurance Reduced • Loans first disbursed on/after October 1, 2012 • Reduced from 97% to 95% 31

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • Exceptional Performer Status Eliminated • Effective for lenders/lender servicers on October 1, 2007 32

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • Reduces GA account maintenance fee from 0. 10% to 0. 06%- payments received on/after October 1, 2007 33

College Cost Reduction and Access Act of 2007 - Budget Reconciliation • Reduces GA default collection retention to 16% - payments received on/after October 1, 2007 34

2006 -2007 Negotiated Rulemaking 35

Four Negotiating Teams – • Loans – NPRM 8/7/07 • ACG/National Smart – NPRM 8/7/07 • General Provisions NPRM 8/8/07 • Accreditation – No Regulations 36

LOANS NPRM • “No Consensus” on NPRM • NPRM reflected what ED heard and deliberations of Secretary’s Loan Task Force 37

Regulations Calendar • NPRM: June 12, 2007 • Deadline for Comments: August 13, 2007 • 241 Comments Received 38

Regulations Calendar • Final rules: no later than November 1, 2007 • Effective date: July 1, 2008 with possible early voluntary implementation 39

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 40

Loans Issues – FFEL/DL • Maximum Loan Period • Identity Theft • Grad/Prof PLUS Loan Counseling 41

Loans Issues – FFEL • Prohibited Inducements • Use of Preferred Lenders • FFEL Loan Certification • Frequency of Capitalization • Eligible Lender Trustees (ELTs) 42

Loans Issues - Perkins • Mandatory Assignment of Defaulted Loans • Reasonable Collection Costs Definition • Child and Family Services Cancellation 43

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 44

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 45

Simplified Deferment Process • Notice to borrower required • FFEL and Direct Loan deferment may be granted only for Economic Hardship based on Perkins Loan deferment 46

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 47

Simplified Deferment Process • Required notice to the borrower and borrower’s representative, if applicable, that the deferment has been granted 48

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 49

Accurate and Complete Copy of a Death Certificate NOTE: “exceptional circumstances” discharge by chief executive officer based on “other reliable information” unchanged 50

Total and Permanent Disability Discharges • Regulations governing TPD discharges restructured in § 682. 402 • Eligibility requirements and the discharge process clarified 51

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 52

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 53

Total and Permanent Disability (TPD) Discharges -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 54

Total and Permanent Disability (TPD) Discharges –Make the Conditional Discharge Period a 3 -year prospective period from TPD date 55

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 during the discharge process 56

Total and Permanent Disability (TPD) Discharges –Require only return of loan payments made after the TPD date (date of physician certification of disability) 57

NSLDS Reporting Requirements • §§ 682. 208, 682. 401 and 682. 414 amended to require enrollment and loan status reporting (or any other Title IVrelated data required by the Secretary) by Secretary’s established deadline 58

NSLDS Reporting Requirements • Deadlines to be published in Federal Register Notice or DCL format 59

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

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 EMPN process, including borrower authentication and signature process 61

Certification of Electronic Signatures on Assigned MPNs • Requires loan holders to retain an original electronically signed MPN for at least 3 years after all MPN’s loans are satisfied 62

Certification of Electronic Signatures on Assigned MPNs • 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 63

Certification of Electronic Signatures on Assigned MPNs • 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 64

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 65

Certification of Electronic Signatures on Assigned FFEL Loan MPNs • Required certification includes: –Description of storage process/systems for signed MPNs to ensure document integrity (no alterations) 66

Certification of Electronic Signatures on Assigned FFEL Loan MPNs • Required certification includes: –Documentation supporting the lender’s authentication electronic signature process –All other evidence required by the Secretary 67

Certification of Electronic Signatures on Assigned FFEL Loan MPNs • 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 68

Record Retention Requirements on FFEL MPNs Assigned to the Department • § 682. 409 amended to require a Guaranty Agency to submit lender disbursement records on assigned loans to ED 69

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. 70

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 71

Loan Counseling for Grad/Prof PLUS Borrowers • Initial counseling required for all PLUS borrowers • Exit counseling required for Stafford/PLUS combination borrowers 72

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 73

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 74

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 75

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 76

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 77

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 78

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 79

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 80

School Preferred Lender List in FFELP Regulations require: • List must contain at least 3 unaffiliated lenders • “Unaffiliated” means: –No common control or ownership –No common directors, trustees, or general partners 81

School Preferred Lender List in FFELP § 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 82

School Preferred Lender List in FFELP • Include prominent statement advising borrowers that use of the school’s preferred lender not required • Update at least annually 83

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 84

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 85

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 86

FFEL Program Lender and GA Prohibited Inducements • Affects lender eligibility and participation and GA participation • Prior regulations primarily reflect statutory provisions 87

FFEL Program Lender and GA Prohibited Inducements • 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) 88

FFEL Program Lender and GA Prohibited Inducements • 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 89

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 90

FFEL Program Prohibited Inducements -Lenders Such as: § Payments to prospective borrowers, including prizes and additional financial aid 91

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 92

FFEL Program Prohibited Inducements - Lenders § Payments or other benefits to student lender reps on campus or other solicitors to secure loan applications from prospective borrowers 93

FFEL Program Prohibited Inducements - Lenders § Payment of referral fees, or processing fees not required to comply with federal or state law, to another lender or other party 94

FFEL Program Prohibited Inducements - Lenders § Payment of conference or training registration, transportation, and lodging costs for schoolaffiliated organization employees § Payment of entertainment expenses related to lendersponsored activities for the same 95

FFEL Program Prohibited Inducements - Lenders § Undertaking philanthropic activities in exchange for FFEL applications, volume, or placement on a school’s preferred lender list 96

FFEL Program Prohibited Inducements - Lenders § Providing staffing services to a school, except a foreign school, other than on a short-term, nonrecurring emergency basis, including compensated and thirdparty contractual services 97

FFEL Program Prohibited Inducements - Lenders § 682. 200 provides that an eligible lender may ONLY provide: • Assistance to schools comparable to that provided DL schools by the Secretary 98

FFEL Program Prohibited Inducements - Lenders • Support for or participation in student aid/financial literacy outreach with schools and guaranty agencies, except inperson initial and exit counseling 99

FFEL Program Prohibited Inducements - Lenders • 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 100

FFEL Program Prohibited Inducements - Lenders • Reduced origination fees (statutorily authorized) • Reduced interest rates (statutorily authorized) 101

FFEL Program Prohibited Inducements - Lenders • Payment of Federal Default fees (not statutorily prohibited) • Borrower benefits under repayment incentive and certain loan forgiveness programs • Items of nominal value 102

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 103

FFEL Program Prohibited Inducements – GAs -- reasonable costs of meals and refreshments for GAsponsored training, workshops, and forums permitted 104

Negotiated Rulemaking 2007 -2008 • 2009 -10 and subsequent years • Federal Register notice Fall 2007 • Regional hearings in Fall 2007 • Negotiating committees TBD 105

Negotiated Rulemaking 2007 -2008 • Committees expected to meet January – March 2008 • NPRMS in June 2008 • Final regulations by November 1, 2008 106

Other Regulations and Forms 107

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 108

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 109

Forms MILITARY DEFERMENT (HERA) -Form Posted to IFAP June 11, 2007 -GEN-07 -04 -Requires CCRAA revisions 9/11 DISCHARGE APPLICATION - Form Posted to IFAP November 9, 2007–GEN-07 -08 110

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 111

Forms • Federal Stafford MPN -Requires CCRAA addendum • Teacher Loan Forgiveness – undergoing ED review prior to entering Paperwork Act clearance process 112

Contact Information We appreciate your feedback and comments. We can be reached at: • Phone: (202) 502 -7732 • Email: Pamela. Moran@ed. gov • Fax: (202) 502 -7873 113