Wanda Hall, Edfinancial Services

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NCHELP Webinar New Regulations

• Wanda Hall, Edfinancial Services
• Laura Kowalski, TG
• Nancy Masten, Great Lakes
• Lynn Murphy, EAC
• Vicki Shipley, NCHELP

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Agenda

• 2007 Negotiated Rulemaking (Neg Reg)
• November 1, 2007 Final Regs effective July 1,
  2008 (Master Calendar)
• Dont forget to read the preamble
• 2008 Neg Reg
• Questions and Answers

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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
• Loan Counseling for Grad PLUS Borrowers
• Maximum Loan Period
• Prohibited Inducements
• Eligible Lender Trustees
• 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 FFEL Loan Certification

• A school may NOT
• Refuse or delay certification based on a
  borrowers choice of lender or guarantor
• Assign lender to first-time borrower
• Refuse to certify or certify a reduced amount
  except on a case-by-case basis, documented, and
  reason must be provided in writing to the
  borrower
• Includes school as lender

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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
• PLL must prominently state that use of any of the
  schools preferred lenders 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

• Regulations 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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Prohibited Activity Examples

• 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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Prohibited Activity Examples

• 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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Prohibited Activity Examples

• 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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Prohibited Activity Examples

• 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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Permissible Activity Examples

• 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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Permissible Activity Examples

• 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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Permissible Activity Examples

• Other benefits to a borrower
• Repayment incentive program that requires, at a
  minimum, one or more scheduled payments to
  receive or retain the benefit or
• Loan forgiveness program for public service or
  other targeted purposes approved by the Secretary
  (may not market 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 with
  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
• For 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 existence - not just
  those signed after July 1, 2008
• Screen Shots - Retain documentation and templates
  that applied for specific 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 issue - Going forward lenders must
  provide disbursement records. Make sure process
  is in place prior to July 1, 2008.

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E-signed Promissory Notes

• NCHELP Operations Committee Considerations
• DACS developed a supplemental process (to be
  exchanged prior to point of assignment)
• Proposal sent for community comment on 4/23/2008
• Only a small number of claim paid accounts are
  assigned to ED

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E-signed Promissory Notes

• Supports current Industry Standards
• E-sign Indicator a Y indicates this note was
  signed electronically. If the note was not
  signed electronically, this field is left blank
• E-sign custodial ID A 9-character field that
  includes the type of organization that captured
  the electronic signature and the organizations
  OPE ID or NCHELP assigned ID
• Allowable codes are L for Lender, O for Guarantor
  or Lender Servicer, and G for Guarantor

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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

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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 to 120 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 lender receives court verdict
  of criminal ID theft, lender may submit a claim
  and receive the interest subsidy and SAP that
  would have accrued

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Identity Theft Discharge

• NCHELP Operations Committee Considerations
• A new claim type of ID will be implemented
• A Claim Form Addendum-Ineligible
  Borrower/Identity Theft is currently in
  development and will be required with the ID
  claim type
• A new NSLDS Claim Reason Code of ID will also
  be implemented

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Death Discharge

• Allows 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
• Allows borrower to remain TPD eligible
• If a loan was certified prior to the date the
  physician certified the application and a loan
  disbursement is made after that date, and
• The disbursement is returned within 120 days from
  the date of the disbursement

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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 do not require, a holder
  to grant a deferment based on the determination
  of another loan holder
• Borrower still must request the deferment
• Deferment dates within or a subset
• Per ED, lender not allowed to use simplified
  process

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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 7/1/2010, 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 service deferment (MIL)
• Removes 3-year limit on military deferment and
  extends deferment for 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 post active duty student 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 or was enrolled within six
  months of being activated
• Effective October 1, 2007

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2008 Neg Reg Topics

• Income-based Repayment Plan (IBR)
• Conforming Economic Hardship Deferment with IBR
• Public Service Loan Forgiveness
• Definition of Not-for-Profit Holder

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More 2008 Neg Reg Topics

• Harmonizing HEROES Waivers with Other Benefits
  Provided to Returning Active Duty Military
• Federal Preemption of States Laws Related to
  improper inducements

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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
• interestgtcollection costsgtlate chargesgtprincipal
• 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
  special allowance
• 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 likely 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

• Debt-to-income criteria
• Currently a borrower is eligible for HRD if
• Employed full time,
• Total loan debt is equal to or greater than 20
  of monthly income, and
• Monthly income minus loan payments leaves
  borrower with no more than 220 of the larger of
• Federal Minimum Wage rate, or
• The poverty level income for a family of two for
  borrowers State
• Effective July 1, 2009, debt-to-income ratio
  calculation is eliminated

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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 employed full time by public
  service organization or Americorps position
  during the entire repayment period
• Can be employed by private organization if it
  does public service work
• Effective 7/1/08, FFEL borrowers may consolidate
  (including a consol) into the DL consolidation
  program to get this benefit but ALL payments must
  have been in DL

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Military Deferments

• Harmonizing of HEROES waivers into regulations
• Lenders able to grant military service deferment
  for up to one year without supporting
  documentation
• Request for deferment can come from borrower or
  borrowers representative

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Military Deferments

• Post Active Duty Student Deferment
• If borrower eligible for both 180 day deferment
  extension (military service deferment) and
  13-month post-active duty student deferment,
  period apply concurrently
• If borrower returns to school after deployment,
  eligibility for this deferment ends regardless of
  if the loan was in repayment, grace or in-school
  status at the time of activation

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Military Deferments

• Adds new mandatory forbearance
• Up to one year
• Members of National Guard who qualify for
  post-active duty student deferment but who are
  not eligible for military service deferment
  because duty is active State duty

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Electronic Resources

• The Project on Student Debt
• A new Web page for borrowers on IBR and Public
  Service Loan Forgiveness can be accessed at
  www.ibrinfo.org

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Electronic Resources

• NCHELP e-Library
• Loan issues and general provisions Final Rules,
  and side-by-side analysis documents can be
  accessed at
• www.nchelp.org/elibrary/index.cfm?parent1904
• A selected summary of the Senate and House
  reauthorization bills can be accessed at
  www.nchelp.org/elibrary/index.cfm?parent1944

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Electronic Resources

• Department of Education (ED)
• 2007-08 Negotiated Rulemaking for Higher
  Education can be accessed at www.ed.gov/policy/hi
  ghered/reg/hearulemaking/ 2008/index2008.html

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HR 5715

• NCHELP will host a webinar to review and discuss
  the provisions of HR 5715, the Ensuring Continued
  Access to Student Loans Act. The webinar is
  currently scheduled for the week of June 9th.
• Watch for details in the Daily Briefing.

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Thank You!