Legislative and Regulatory Impact on Technology Standards

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Legislative and Regulatory Impact on Technology
Standards
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Overview

• Legislative Overview
• Market Issues
• Negotiated Rulemaking
• 2007 process, resulting in July 1, 2008 effective
  regulations
• 2008 process, resulting in July 1, 2009 effective
  regulations
• Discussion/Questions

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Legislative Overview

• Higher Education Reconciliation Act (HERA)
• Cut 18 billion from FFELP
• Increased annual loan limits for first and second
  year undergrads
• Reduced origination fees
• Made provisions of the Taxpayer Teacher
  Protection Act permanent
• Reduced Lender insurance from 98 to 97
• Made 458 funds discretionary

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Legislative Overview

• College Cost Reduction and Access Act (CCRAA)
• Cut almost 20 billion from FFELP
• Reduced SAP on all new loans disbursed on or
  after 10/1/07
• Increased Lender paid origination fee
• Decreased interest rates on new undergrad
  subsidized Stafford loans for five years
• Eliminated Exceptional Performer
• Instituted an auction plan for Parent PLUS loans
• College Access Challenge Grants

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Legislative Overview

• Higher Education Act (HEA)
• House passed H.R. 4137 on February 7th 354-58
• Senate passed S. 1642 on July 24th 95-0
• Current (11th) HEA Extender (S. 2733) expires
• on April 30th
• Reauthorization to be completed..finally????
• Pre-Conference meetings underway
• Will need at least one more extension
• Floor action slated for early spring

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Higher Education Act

• Issues include
• Financial literacy
• Student loan information disclosure to 3rd
  parties
• Additional auction study
• Code of conduct
• Private loan issues
• Multiple disclosures
• Entrance and exit counseling
• Service on Boards of Directors and on Advisory
  Councils
• Guarantor/DL audit requirements

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HEA

• Private Loans
• House rolls private loans into HEA
• Senate does not include
• More than likely final conference report will
  deal with private loans
• Disclosures
• School Certification
• Info to borrow Federal loans first

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Market Issues

• Secretary Spellings.closely monitoring the
  situation
• Moving forward with Lender of Last Resort
• Federal Advance or not to guaranty agencies
• Full authority, no need for Congressional
  approval to advance funds from Treasury
• Preparing Direct Lending for increased volume
• Senator Kennedy (D-MA) Introduced S. 2815,
  Strengthening Student Aid for All Act.
• Americans are facing economic challenges at
  every turn. They see jobs disappearing, homes
  being foreclosed, debts soaring, and benefits
  worth less and less. Now families are finding
  that the loans they rely on to afford the high
  cost of college may also be at risk. We cant
  allow problems in the credit market to prevent
  students from going to college.

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Market Issues

• This bill ensures that the federal government
  can step in when banks and student loan companies
  fail to provide student loans due to the current
  credit crunch in the capital markets.
• S. 2815 will
• Increase Pell for the lowest income students by
  up to 750.00
• Increase annual unsubsidized loan limits for
  dependent undergraduate by 1000
• Increase annual unsubsidized loan limits for
  independent undergraduates by 2000
• (and for students whose parents unable to get a
  PLUS loan due to poor credit)
• Allow parent borrowers to defer repayment while
  student is enrolled
• Provides for institution based Lender of Last
  Resort, vs. current law of borrower based Lender
  of Last Resort
• Makes the Secretary the secondary market of last
  resort temporarily

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Market Issues

• George Miller (D-CA) Introduced similar
  legislation, The Ensuring Continued Access to
  Student Loans Act of 2008, H.R. 5715
• Already, the crisis in the financial markets has
  badly hurt American homeowners and working people
  we cant let it also stop students from
  pursuing their educational goals, said Miller,
  chairman of the House Education and Labor
  Committee. Students and families cant afford
  any ambiguity or snafus to undermine their
  ability to attend college. I am confident that if
  we act quickly and decisively, then students will
  have the financial support necessary to begin or
  continue their higher education.

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Market Issues

• H.R. 5715 introduced 4/8/2008
• Full Committee Mark up 4/9/08
• Reported to the floor by voice vote
• Voted off the floor 383-27 on 4/17/08
• Increase annual loan limits for all students by
  2000.00
• Provide Parent PLUS borrowers with a deferment
  for up to six months after the student leaves
  school
• Allows PLUS Credit extenuating circumstances to
  include being less than 180 days delinquent on
  home mortgage payments or medical bill payments
  and less than 90 days delinquent on other debt

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Market Issues

• Clarify Secretarys authority to advance federal
  funds to guaranty agencies for purposes of Lender
  of Last Resort
• Gives Secretary authority to deem a school a
  lender of last resort school vs. borrower based
  program
• Requires Secretary to insure guarantors do not
  engage in
• Give the Secretary of Education temporary
  authority to purchase loans from FFELP lenders
  and service through the Direct Loan Program.
• The Secretary would be authorized to purchase
  only those loans that would not result in a cost
  to the federal government

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Market Issues

• H.R. 5723, The Emergency Student Loan Market
  Liquidity Act
• Introduced by Paul Kanjorski (D-PA) on 4/8/08
  (Senator Kerry (D-MA) introduced companion bill
  S. 2847)
• Amends the Federal Home Loan Bank Act to allow
  federal home loan banks to (1) invest surplus
  funds in student loan securities (2) accept
  student loans and student loan-related securities
  as collateral and (3) provide secured long-term
  advances to member banks so that they can finance
  the origination of student loans or purchase or
  finance student loan-related securities.
• Limits the application of the Act to Federal
  Family Education Loans (FFELs) made under the
  Higher Education Act of 1965.
• Makes the banks' authority effective for
  investments and advances made between February 1,
  2008, and two years after this Act's enactment.

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Negotiated Rulemaking - 2007

• Sessions
• December 12-14, 2006
• February 5-7, 2007
• March 12-14, 2007
• April 18-20, 2007
• NPRM Published - June 12, 2007
• Final Regulations Published November 1, 2007
• Regulations effective July 1, 2008

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2007 Neg Reg Topics

• Simplification of the Deferment Process
• Accurate and Complete Copy of a Death Certificate
• Total and Permanent Disability (TPD) Discharge
• NSLDS Reporting Requirements
• Certification of Electronic Signatures on MPNs

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More 2007 Neg Reg Topics

• Record Retention Requirements on MPNs assigned
  to the Department
• Maximum Loan Period
• Prohibited Inducements
• Frequency of Capitalization on Consolidation Loans

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Still More

• Loan Discharge for False Certification as a
  Result of Identity Theft
• Preferred Lender Lists
• CCRAA Self-implementing Items
• Temporary Interest Rate Reduction for Undergrad
  Subsidized Stafford
• Economic Hardship Deferment
• Military Deferment

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School Preferred Lender List

• Allows school to have such a list, which
• Cannot deny borrowers choice of lender
• Must contain at least three unaffiliated
  lenders
• Cannot cause any unnecessary certification delays
  for borrowers not using lender on PLL
• Must be updated annually
• School with a list must provide certain
  disclosures to borrowers

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School Preferred Lender List

• A lender is affiliated with another lender if
• The lenders are wholly or partly owned
  subsidiaries of the same parent company
• The lenders are owned or controlled by the same
  entity or individuals or
• The directors, trustees, or general partners of
  one of the lenders constitute a majority of the
  persons holding similar positions with the other
  lender

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School Preferred Lender List

• Developing PLL
• Disclose method/criteria for lender selection
• Provide comparative borrower benefits offered by
  listed lenders (ED model format to be provided)
• PLL must prominently state that use of the
  schools preferred lender not required

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Inducements

• Retains quid pro quo requirement
• Provides non-exhaustive list of prohibited
  activities
• Provides exhaustive list of permissible activities

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Inducements

• Regulation introduce 3 new tools for
  anti-inducement enforcement
• Rebuttable presumption
• Expansion of FTC Holder Rule
• Claim/guarantor review of inducement practices

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Prohibited Inducements

• The activities on the prohibited list are only
  prohibited if they are tied to loans, loan
  volume, or placement on a school's preferred
  lender list since you can't have an improper
  inducement without intent.

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Prohibited Inducements

• Similarly, it is still okay for a bank
  participating in the FFELP to extend benefits to
  a school in connection with a product
  line/service unrelated to student-aid, as long as
  it is not tied to loans, loan volume, or
  placement on a school's preferred lender list.

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Examples Prohibited Activities

• Payment of points, premiums, payments or other
  inducements
• Payments or other benefits provided to student at
  a school who acts as the lenders representative
• Payments or other benefits to a loan solicitor or
  sales rep of a lender who visits a school to
  solicit individual borrowers

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Examples Prohibited Activities

• Payment to another party or any other party of
  referral or processing fees, except to comply
  with Federal or State law
• Payment of conference or training registration,
  transportation, and lodging costs, for an
  employee of a school or school-affiliated
  organization

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Examples Prohibited Activities

• Payment of entertainment expenses, including
  expenses for private hospitality suites, tickets
  to shows or sporting events, meals, alcoholic
  beverages, and any lodging, rental,
  transportation, and other gratuities related to
  lender-sponsored activities for employees of a
  school or a school-affiliated organization

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Examples Prohibited Activities

• Staffing services to a school, except for
  services provided to participating foreign
  schools at the direction of the Secretary, as a
  third-party servicer or otherwise on more than a
  short-term, emergency basis, and which is
  non-recurring, to assist a school with financial
  aid-related functions

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Lender Permissible Activities

• The activities on the permitted list are
  permitted even if they are tied to loans or loan
  volume, or undertaken to obtain a PLL listing.

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Examples Permissible Activities

• Support of and participation in a schools or a
  guaranty agencys student aid and financial
  literacy-related outreach activities, excluding
  in-person school required entrance or exit
  counseling, as long as the name of the entity
  that developed and paid for any materials is
  provided to the participants and the lender does
  not promote its student loan or other products

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Examples Permissible Activities

• Meal, refreshments, and receptions that are
  reasonable in cost and scheduled in conjunction
  with training, meeting, or conference events if
  they are open to all training, meeting, or
  conference attendees
• Items of nominal values to schools,
  school-affiliated organizations, and borrowers
  that are offered as a form of generalized
  marketing or advertising, or to create good
  will

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Examples Permissible Activities

• Other benefits to a borrower under a repayment
  incentive program that requires, at a minimum,
  one or more scheduled payments to receive or
  retain the benefit or under a loan forgiveness
  program for public service or other targeted
  purposes approved by the Secretary, provided
  those benefits are not marketed to secure loan
  applications or loan guarantees

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Guarantor Permissible Activities

• Default aversion activities approved by ED
• Meals and refreshments in connection to
  guarantor-provided training of program
  participants and elementary, secondary, and
  postsecondary school personnel

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Guarantor Permissible Activities

• Travel and lodging costs to facilitate the
  attendance of school staff
• In training or service facility tours
• To participate in the activities of an agencys
  governing board, a standing official advisory
  committee, or in support of other official
  activities of the agency

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E-signed Promissory Notes

• Upon assignment to ED, guarantor must provide the
  name and location of the entity in possession of
  original e-signed MPN
• Lender must retain e-note for 3 years after all
  loans are satisfied
• If loan is assigned to ED, lender must cooperate
  with requests for affidavits, testimony, etc.

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E-signed Promissory Notes

• Contents of Affidavit
• Steps followed by borrower in signing note (flow
  chart)
• Screen Shots as appeared to borrower
• Field edits other security measures to ensure
  data integrity
• Preservation of note to ensure no alterations
• Authentication and Electronic Signature Process
• Timeframe for response 10 business days

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E-signed Promissory Notes

• Applies to all e-loans in existencenot just
  those signed after July 1, 2008
• Screen ShotsRetain documentation and templates
  that applied for discrete periods of time
  document any changes

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E-signed Promissory Notes

• Requirements are for lender that created the
  original e-Note, not necessarily the current
  holder of the Note
• Related issueGoing forward, when submitting
  claims, lenders must provide disbursement
  records. Make sure process is in place prior to
  July 1, 2008.

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Identity Theft Discharge

• For discharge, must be a judicial determination
  that conclusively determines that the individual
  is the victim of the crime of identity theft
  committed by a specific individual named in the
  determination
• Court must conclude that the specific elements of
  the crime have been proven (including
  perpetrators identity and state of mind)

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Identity Theft Discharge and FACT
Act

• Regulations do not preempt the FACT Act
  provisions regarding ID theft.
• Lender must suspend credit bureau reporting and
  grant forbearance (up to120 days) during
  investigation.
• Not retroactive, but ED will take into
  consideration any prior due diligence lapses due
  to conflicts in HEA vs. FACT Act

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Identity Theft Discharge and FACT Act

• If loan does not qualify for discharge, but is
  unenforceable, lender must notify credit bureau,
  stop collecting interest benefits, SAP, and
  return any monies received
• If, within 3 years of the ID theft report the
  lender receives the court order, lender may
  submit a claim and receive the interest subsidy
  and SAP that would have accrued

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Death Discharge

• Final rules allow guarantor to use accurate and
  complete copy of death certificate
• Recommended trigger "Effective for death
  discharge requests filed by the lender based on
  determinations or re-determinations of eligible
  photocopies on or after July 1, 2008, unless
  implemented earlier by the lender on or after
  November 1, 2007"

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Total and Permanent Disability Discharge

• Requires a three-year prospective conditional
  discharge period that begins on date physician
  certifies discharge application
• If a loan was certified prior to the date the
  physician certified the application and a loan
  disbursement is made after that date, the
  disbursement must be returned within 120 days
  from the date of the disbursement for the
  borrower to remain TPD eligible

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Total and Permanent Disability Discharge

• States that borrower has 90 days from date
  physician certifies application to submit it to
  loan holder
• Provides for refund of payments made after date
  physician certifies borrowers application

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Simplification of Deferment Process

• Final rules allow, but not require, a holder to
  grant a deferment based on the determination of
  another loan holder.
• Borrower still must request the deferment
• Outstanding issue dates within or a subset

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CCRAA Stafford Interest Rate Changes

• Reduces fixed interest rate for undergraduate
  subsidized Stafford loans (FFELP and Direct) from
  6.8 to 3.4 over 4 years
• 6.0 on or after 7/1/2008, and before 7/1/2009
• 5.6 on or after 7/1/2009, and before 7/1/2010
• 4.5 on or after 7/12010, and before 7/1/2011
• 3.4 on or after 7/1/2011, and before 7/1/2012
• 6.8 on or after 7/1/2012

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CCRAA Deferment Changes

• Economic hardship deferment (HRD)
• Changes definition of economic hardship for
  purposes of deferment from 100 of the poverty
  line for a family of two to 150 of the poverty
  line applicable to the borrowers family size
• Effective October 1, 2007

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CCRAA Deferment Changes

• Military deferment (MIL)
• Removes 3-year limit on military deferment and
  extends deferment through 180 days following
  demobilization
• Available to FFELP, Direct, and Perkins
  borrowers, regardless of date loan was disbursed
• Effective October 1, 2007

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CCRAA Deferment Changes

• Military deferment
• New 13-month deferment for borrower returning
  from active duty, and who was enrolled in an
  eligible institution prior to being called or
  ordered to active duty
• Effective October 1, 2007

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Negotiated Rulemaking 2008

• 2008 Topics included
• Direct Loan Public Service Loan Forgiveness
• Income Based Repayment (IBR)
• Conforming Economic Hardship Deferment with IBR
• Definition of Not-For-Profit Loan Holder
• Harmonizing HEROES Waivers with other Benefits
  Provided to Returning and Active Duty Military
• Federal Preemption of States Laws Related to
  improper inducements
• Final Loans Team Meeting April 14-15, 2008
• Regulations will be effective July 1, 2009 and
  must be published in final form by November 1,
  2008

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Income-Based Repayment

• New repayment option available 7/1/2009 for
  borrowers experiencing partial financial
  hardship
• Eligibility and minimum monthly payment is
  re-evaluated annually
• Government pays the interest on qualifying
  subsidized Stafford loans for not more than 3
  years (not counting periods of Economic Hardship
  deferment)

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Income-Based Repayment

• The repayment period can extend beyond 10 years
  regardless of the amount of the eligible debt but
  not beyond 25 years
• Payment application order different - to interest
  first
• Includes a loan forgiveness provision after
  experiencing a partial financial hardship and 25
  years of eligible payments

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Income-Based Repayment

• Any loan amount that is cancelled may be taxable
  in the calendar year it is cancelled
• Additional disclosure requirements
• IBR may not always be the best/lowest repayment
  option for a borrower should consider impact of
  eligibility for an Economic Hardship deferment

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Income-Based Repayment

• POSSIBLE new data elements will likely need to
  track or maintain for future use
• Minimum and maximum payment amounts
• Unpaid accrued interest for purposes of billing
  SAP
• 36 month counter for unpaid accrued interest on
  subsidized Stafford
• If borrower consolidates unused portion would
  carry over with underlying loan to consolidation
  loan

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Income-Based Repayment

• POSSIBLE new data elements will likely need to
  track or maintain for future use (cont)
• Start point of 25 year period and projected
  ending
• Potential for any payment made on/after July 1,
  2009 to count toward 300 required payments
• Calculated partial financial hardship payment of
  zero counts as eligible payment
• Borrower permitted to pay ahead but forgiveness
  may not occur until reach 25th year

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Income-Based Repayment

• POSSIBLE new data elements will need to track or
  maintain for future use (cont.)
• 25 years of payments (300 payments)
• Payment history or counter of eligible payments
  would need to carry over to the guarantor in
  cases where loan assigned to guarantor. If
  subsequently repurchased or rehabilitated,
  information would need to flow back to lender.

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Economic Hardship Deferment

• POSSIBLE Change to the HRD
• Elimination of the debt-to-income ratio
  calculation for purposes of determining
  eligibility as of 7/1/09
• Currently borrowers are eligible for this
  deferment if their total debt is more than 20 of
  their income and if their income minus their loan
  payments leaves them with no more than 220 of
  the income considered poverty level in the U.S.
• Big Cost ItemED estimated the 10-year cost of
  maintaining this provision at 1.1 billion

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Public Service Loan Forgiveness

• New loan cancellation provision for Direct Loan
  borrowers not in default who
• Have made 120 monthly payments on an eligible
  loan starting after 10/1/2007
• Must have been directly and full-time employed
  in public service during the entire repayment
  period
• FFEL borrowers may consolidate into DL to get
  this benefit but ALL payments must have been in DL

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FFELP NEG REG TEAM

• TEAM FFELP did amazing job
• Wanda Hall and Rob Sommers
• Gene Hutchins and Dick George
• Scott Giles and Phil Van Horn
• Tom Levandowski and Walter Balmas
• Martin Darnian and Carl Perry
• Thanks to the TEAM FFELP Peanut Gallery as well.

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QUESTIONS
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