Title: The Higher Education Reconciliation Act of 2005
1 - The Higher Education Reconciliation Act of 2005
- Prepared by the NCHELP Program Regulations
Committee - This presentation provides a summary of
the changes contained in the Higher Education
Reconciliation Act of 2005. Readers should refer
to the detail of the law and sub-regulatory
guidance from the U.S. Department of Education in
determining all relevant issues. This
presentation was last updated on March 30, 2006.
2 - Reconciliation
- Versus
- Reauthorization
3 Reconciliation versus Reauthorization
- The Higher Education Act should have been
reauthorized in 2003. - With no Congressional action, the automatic
one-year extension kicked in. - Since then, other short-term extensions have been
passed.
4 Reconciliation versus Reauthorization
- Since the Higher Education Act should have been
reauthorized, the Federal government has run huge
budget deficits - 2003 377.6 billion
- 2004 412.1 billion
- 2005 318 billion.
- Pressure to reduce Federal spending increased
with each deficit.
5 Reconciliation versus Reauthorization
- April 28, 2005 Congress passed a 5-year budget
reconciliation bill. - This bill required spending cuts of 34.7 billion
over 5 years. - Each Congressional committee was given
instructions on how much spending to cut.
6 Reconciliation versus Reauthorization
- The committees overseeing higher education were
instructed to cut - House - 12.7 billion
- Senate - 13.7 billion
- When Hurricane Katrina hit, the committees were
asked to cut even more. - At the same time, the House and Senate Education
committees were considering bills to reauthorize
the HEA.
7 Reconciliation versus Reauthorization
- The end result was S. 1932, the Deficit Reduction
Act of 2005. - The section of the law dealing with higher
education is the Higher Education Reconciliation
Act of 2005 (HERA). - Many of the provisions of the House and Senate
HEA reauthorization bills were included in this
bill. - Legislative history
- 12/21/2005 Senate passed 51-50
- 02/01/2006 House passed 216-214
- 02/08/2006 President signed bill into law
8 Reconciliation versus Reauthorization
- The validity of this law has been called into
question. - A single provision relating to Medicare differed
between the House and Senate versions of the
bills. - At least two lawsuits have been filed to
invalidate the law. - Sen. Judd Gregg, 02/28/2006
- "It happens all the time around here if we're
going to start holding ourselves to that
standard, the government wouldn't function at
all. - Bottom line assume the law will stand
9 Reconciliation versus Reauthorization
- So is reauthorization still needed?
- S. 1932 reauthorized the FFEL program through
September 30, 2012. 424(a), 428(a)(5), 428C(e) - The rest of the Higher Education Act expires on
March 31, 2006. - On March 14, the House passed an extension of the
HEA through June 30, 2006 (H.R. 4911). - Thus far, the Senate has not taken any action.
10 - Effective Dates and Triggers
11Effective Dates and Triggers
- In general, the changes made by HERA have an
effective date of July 1, 2006. S. 1932, Section
8001(c) - However, certain changes have different effective
dates. - Some of the changes are effective in the future.
- At least two of the changes are retroactive.
12 Effective Dates and Triggers
- Knowing an effective date is not enough in many
cases. - To properly implement a change, you also need to
know the trigger event.
13 Effective Dates and Triggers
- If a change is effective on July 1, 2006 does
this mean - Loans guaranteed on or after 7/1/2006?
- Loans certified on or after 7/1/2006?
- Loans with a first disbursement on or after
7/1/2006? - Loans for a period of enrollment beginning on or
after 7/1/2006? - Something else?
14 Effective Dates and Triggers
- In some cases HERA is very specific regarding the
triggering event. - In other cases, ED will have to establish a
trigger event. - On February 24, a list of trigger event
recommendations was sent to ED on behalf of - NCHELP
- CBA
- EFC
- SLSA.
- ED especially OPE and OGC will make the final
decisions on the trigger events. - Dear Colleague Letter GEN-06-02 establishes
trigger events for loan program changes,
15 16 Need Analysis Changes
- The changes to need analysis have two different
effective dates - July 1, 2006
- For determinations of need for periods of
enrollment beginning on or after July 1, 2007. - The 2007 changes do not present any significant
issues - The trigger date is very clear
- The implementation date is far enough out to
allow for orderly change.
17 Need Analysis Changes
- The changes with a July 1, 2006 effective date
create some challenges - What is the trigger event determinations of
need for periods of enrollment on or after July
1, 2006 or something else? - Paper FAFSAs are already printed with pre-HERA
rules. - FAFSA on the Web does not take the new law into
account.
18 Need Analysis Changes
- NASFAA sent letter to ED on February 6
suggesting - FAFSA on the Web be modified as quickly as
possible - Using the Central Processing System to notify
paper filers to make corrections based on the new
law - Use the same method to notify FAFSA on the Web
users who filed before changes are made to make
corrections. - Each day that passes without integrating these
changes more potential corrections.
19 Need Analysis Changes
- HERA changed the definition of independent
student. - Previously, the student had to be a veteran of
the Armed Forces to be independent. - This definition has been expanded to include
students currently serving on active duty in the
Armed Forces for other than training purposes.
480(d)(3) - There is no definition of currently serving on
active duty in the Armed Forces in this section
of the law.
20 Need Analysis Changes
- Eligibility for the Simplified Needs Test and
Automatic Zero EFC has been changed by HERA. - The receipt of benefits under a means-tested
Federal benefit program in the past 12 months
qualifies a student or family for simplified
needs testing and automatic zero. - HERA provides examples of means-tested Federal
benefit programs, and allows ED to identify
others.
21 Need Analysis Changes
- Means-tested benefits programs specifically
mentioned in HERA are the - Supplemental Social Security Income
- Food stamps
- Free and reduced price school lunch program
- Temporary Assistance for Needy Families
- WIC nutrition program 479(d)
22 Need Analysis Changes
- For a dependent student, if the student or
students parents received benefits at some time
during the previous 12-month period under such a
program - The family qualifies for the simplified needs
test, 479(b)(1)(A) and - If the parents adjusted gross income is 20,000
or less, also qualifies for automatic zero EFC.
479(c)(1)(B)
23 Need Analysis Changes
- For an independent student, if the student AND
spouse (if any) received benefits at some time
during the previous 12-month period under such a
program, they qualify for the simplified needs
test. 479(b)(1)(B)
24 Need Analysis Changes
- An independent student with dependents other than
a spouse qualifies for the simplified needs test
and automatic zero EFC if the student and spouse
(if any) - Received benefits at some time during the
previous 12-month period under such a program,
and - Adjusted gross income is 20,000 or less.
479(c)(2)
25 Need Analysis Changes
- Another 2006 need analysis change deals with the
treatment of qualified education benefits. - Before HERA
- The treatment of 529 education savings plans and
Coverdell education savings accounts was not
addressed, and - 529 prepaid tuition plans were defined as being
part of other financial assistance (EFA)
26 Need Analysis Changes
- Now, all of these plans fall under the definition
qualified education benefits and are considered
assets. 480(f)(1) - HERA also stipulates that a qualified education
benefit cannot be considered an asset of a
dependent student. 480(f)(3)
27 Need Analysis Changes
- HERA also changed other definitions effective
July 1, 2006. - The definition of asset was changed to exclude
the net value of a small business if - The business has 100 or less full-time or FTE
employees, and - The business (or any part of it) is owned and
controlled by the family. 480(f)(2)(C)
28 Need Analysis Changes
- The definition of EFA now excludes non-Title IV
State assistance designated to offset a specific
component of COA. 480(j)(3) - An example might be payments from a Department of
Rehabilitative Services. - Some changes were made to the components of the
employment expense allowance for clarifying
purposes. 478(h)
29 Need Analysis Changes
- HERA makes several changes for 2007 that will
have the effect of lowering EFC. - Income protection allowances will be increased at
least 5 in 2007. - ED has new authority to increase these allowances
annually based on - The percentage increase in the Consumer Price
Index - Rounding to the nearest 10. 478(b)(2)
30 Need Analysis Changes
- For dependent students, the student income
protection allowance will increase from 2,200 to
3,000. 475(g)(2)(D) - For independent students without dependents other
than a spouse, the allowances increase from - 5,000 to 6,050 for a single student
- 5,000 to 6,050 for married students where both
are enrolled - 8,000 to 9,700 for married students where one
is enrolled. 476(b)(1)(A)(iv)
31 Need Analysis Changes
- Assets will also be treated differently in 2007
- For dependent students, the student contribution
is being reduced from 35 to 20 475(h) - For independent students without dependents other
than a spouse, the asset conversion rate will
drop from 35 to 20 476(c)(4) - For independent students with dependents, the
asset conversion rate drops from 12 to 7.
477(c)(4)
32 Cost of Attendance
- HERA makes two changes to the law regarding cost
of attendance. - Before this bill, COA for less than half-time
students was limited to - Tuition and fees
- Allowance for books, supplies and transportation
- Allowance for dependent care. 472(4)
33 Cost of Attendance
- Room and board is now included for less than
half-time students, but with conditions - These costs are limited to a maximum of 3
semesters or the equivalent, and - No more than 2 semesters or the equivalent can be
consecutive. - This provision is effective July 1, 2006.
34 Cost of Attendance
- A new allowable component of COA was added by
HERA for students in programs requiring
professional licensure or certification.
472(13) - The one-time cost of obtaining the first
professional credentials can be added to COA at
the schools option. - The school determines the amount of this
allowance.
35 - Student, Borrower and Program Eligibility
36 Student Borrower Eligibility
- Eligibility for students convicted of drug
offenses has been liberalized by HERA. - Before HERA, the student lost eligibility for a
specified period of time regardless of - when the offense occurred, and
- whether the student was receiving Title IV aid at
the time.
37 Student Borrower Eligibility
- Now, the conduct leading to the conviction has to
occur during a period of enrollment for which the
student was receiving Title IV - Grants
- Loans
- Work assistance. 484(r)(1)
- If the conduct leading to the conviction does not
occur while the student is receiving Title IV
aid, a conviction has no effect on the students
future eligibility for aid.
38 Student Borrower Eligibility
- HERA adds a new eligibility condition concerning
fraud in obtaining funds under Title IV. - Students obtaining Title IV funds through fraud
are ineligible for aid if they have - Been convicted
- Pled nolo contendere (no contest)
- Pled guilty. 484(a)(6)
39 Student Borrower Eligibility
- This provision was also added for parents or
graduate or professional students under the PLUS
program. 424B(a)(1)(B) - Students and parents regain eligibility when they
have completed repayment to ED or another holder
of the loan.
40 Program Eligibility
- Before HERA, the academic year for clock hour
programs was - A minimum of 30 weeks
- During which the student was expected to complete
900 clock hours. - This meant that students typically could not earn
more than 30 clock hours in a given week.
41 Program Eligibility
- Schools wishing to run clock hour programs like a
typical 40-hour workweek were effectively
prevented from doing so by this rule. - HERA reduces the minimum number of weeks to 26
for clock hour programs to address this issue.
481(a)(2)(A)(ii) - This change is effective July 1, 2006.
42 Student-Program Eligibility
- Before HERA, students were generally prohibited
from receiving grants, loans or work assistance
for correspondence courses. - The exception was if the course led to associate,
bachelor or graduate degree. - This limited the growth of distance education by
treating correspondence and telecommunications
courses as the same thing.
43 Student-Program Eligibility
- Students were ineligible for aid under previous
law if the school offered more than 50 of its
total courses via telecommunications and
correspondence. - HERA eliminated the 50 rule, making more
students eligible for aid, thus allowing for
greater use of distance education. 484(l)(1)(B) - A related change allows students to receive aid
for certificate programs of less than one year
that are offered by telecommunications.
484(l)(1)(A)
44 Program Eligibility
- A corresponding change was made to the definition
of institution of higher education. - Before HERA, this definition excluded a school
that offered more than 50 of the schools
courses by correspondence. - HERA changes this definition to exclude
telecommunications courses from the 50 limit.
102(a)(3)(A)
45 Program Eligibility
- A program can be offered in whole or in part
through telecommunications if it meets the
following criteria - It is otherwise eligible
- It is offered by a U.S. school (foreign schools
are specifically excluded) - The schools accrediting agency determines the
school has the capability to effectively deliver
distance education programs - The evaluation of distance education is in the
accrediting agencys scope of review - The accrediting agency is approved by ED.
481(b)(3)
46 - Academic Competitiveness Grant Program
47 Academic Competitiveness Grants
- HERA created a new form of grant aid by
establishing the Academic Competitiveness Grant
Program. - The grants will go by different names based upon
grade level - Academic Competitiveness Grant for the first and
second year of a program of undergraduate
education - National Science and Mathematics Access to Retain
Talent Grant or National SMART Grant for the
third and fourth year of a program of
undergraduate education.
48 Academic Competitiveness Grants
- Grade level is also a determining factor in the
grant amount - 750 for the first academic year
- 1,300 for the second academic year
- 4,000 for the third or fourth academic year
- The amount, in combination with the Federal Pell
Grant and other financial assistance, cannot
exceed the COA. - These grant amounts are not as simple as they
appear.
49 Academic Competitiveness Grants
- ED has been authorized to spend a certain amount
of money on these grants each year - 790,000,000 for fiscal year 2006
- 850,000,000 for fiscal year 2007
- 920,000,000 for fiscal year 2008
- 960,000,000 for fiscal year 2009
- 1,010,000,000 for fiscal year 2010
- As a result, if there are more eligible students
than there is money, the grant amounts could
change.
50 Academic Competitiveness Grants
- If the amount made available each year is less
than the amount required to provide grants to all
eligible students, the amount of each grant to
each eligible student shall be ratably reduced. - If additional amounts are appropriated for any
such fiscal year, such reduced amounts shall be
increased on the same basis as they were reduced. - At the end of a fiscal year, all excess funds
shall remain available for awarding grants during
the subsequent fiscal year.
51 Academic Competitiveness Grants
- Eligibility for these grants also varies by grade
level, but at all grade levels the student must
be - Attending a 2- or 4-year degree granting school
- A U.S. citizen
- A full-time student
- Pell eligible
- Beyond these common requirements, eligibility
differs based on grade level.
52 Academic Competitiveness Grants
- In the case of a student enrolled or accepted for
enrollment in the first academic year - Has successfully completed, after January 1,
2006, a rigorous secondary school program of
study established by a State or local educational
agency and recognized as such by the Secretary,
and - Has not been previously enrolled in a program of
undergraduate education.
53 Academic Competitiveness Grants
- In the case of a student enrolled or accepted for
enrollment in the second academic year - Has successfully completed, after January 1,
2005, a rigorous secondary school program of
study established by a State or local educational
agency and recognized as such by the Secretary
and - Has obtained a cumulative grade point average of
at least 3.0 at the end of the first academic
year of such program of undergraduate education
54 Academic Competitiveness Grants
- In the case of a student enrolled or accepted for
enrollment in the third or fourth academic year - Is pursing a major in the physical, life, or
computer sciences, mathematics, technology, or
engineering (as determined by the Secretary
pursuant to regulations) or - Is pursing a major in a foreign language that the
Secretary, in consultation with the Director of
National Intelligence, determines is critical to
national security of the U.S., and - Has obtained a cumulative grade point average of
at least 3.0 in the coursework required for the
major.
55 Academic Competitiveness Grants
56 Academic Competitiveness Grants
- The grants are limited to
- 1 academic year for the first academic year of a
program of undergraduate education - 1 academic year for the second academic year of a
program of undergraduate education - 2 academic years for a borrower who is in his/her
third or fourth year of a program of
undergraduate education - The authority to make Academic Competitiveness
Grants expires at the end of academic year
2010-2011.
57 58 Interest Rates - Stafford
- HERA allows for changes in interest rates
- The Higher Education Act already called for
Stafford loan rate to change 427A(l)(1) - Applies to Stafford loans (sub and unsub) with a
first disbursement on or after July 1, 2006 - Rate is fixed at 6.8
- Result borrowers with both variable and fixed
rate loans
59 Interest Rates - PLUS
- Before HERA, the PLUS rate was scheduled to
change to a 7.9 fixed rate - HERA changed this for FFELP borrowers
427A(l)(2) - Trigger event is loans with a first disbursement
on or after July 1, 2006 - Rate is fixed at 8.5
- Result borrowers with both variable and fixed
rate loans - This will be the rate for FFELP Graduate PLUS
borrowers also
60 Interest Rates - PLUS
- HERA did NOT make a corresponding change to the
Direct Loan PLUS rate. - This was a drafting error and was unintentional.
- The DL PLUS rate will be 7.9 unless Congress
takes additional action.
61 Interest Rates - Consolidation
- Consolidation rate did not change
- Fixed rate based on the weighted average of the
loans being consolidated - Cap is 8.25
- FFELP PLUS borrowers will be paying more (8.5)
than the Consolidation cap (8.25) - Unless Congress acts, FFELP PLUS borrowers could
consolidate to obtain a lower rate
62 Interest Rate Disclosures
- With interest rate changes, how will borrowers be
notified? - The Stafford and PLUS MPNs have identical
interest rate language.
63 Interest Rate Disclosures
- The current Borrower Rights and Responsibilities
statements reference variable rates. - Stafford
64 Interest Rate Disclosures
- The PLUS Borrower Rights and Responsibilities
statement is much the same
65 Interest Rate Disclosures
- There is not enough time between now and July 1
to revise these MPNs. - To disclose interest rate and other changes to
borrowers obtaining new loans - Promissory note addendum
- Revised plain language disclosure.
66 Interest Rate Disclosures
- NCHELP has submitted a proposed MPN addendum and
plain language disclosure to ED. - The proposal was for a single addendum to cover
Stafford, PLUS and Consolidation changes. - ED has indicated it will probably require
separate addenda for Stafford, PLUS and
Consolidation.
67 Interest Rate Disclosures
- The addenda would be
- Integrated into existing e-sign processes
- Given in hard copy to borrowers using a paper
MPN. - The PLD would be provided to all borrowers
obtaining new loans under an existing MPN.
68 69 Origination Fees
- One of the best provisions of HERA is the gradual
elimination (for FFELP) and reduction (for DL) of
origination fees. - Since the DL program does not have a guarantee
fee, the DL origination fee is 1 higher under
both previous and current law.
70 Origination Fees
- The origination fee reductions apply to Stafford
loans only not PLUS. - The fee reductions are based on the first
disbursement date, so schools will have some
degree of control over the fee a student pays.
71 Origination Fees
- The following chart shows the schedule for
reducing the origination fees - 438(c)(2)(B) and 455(c)(2)
72 Origination Fees
- Before HERA, the Secretary had the authority to
reduce interest rates for DL borrowers to
encourage on-time repayment if the reductions
were - Cost neutral, and
- In the best financial interest of the Federal
Government.
73 Origination Fees
- The law now allows the Secretary to also reduce
the DL origination fee. 455(b)(8)(A) - The cost neutrality and best financial interest
standards also apply to any potential reduction
in the DL origination fee.
74 Federal Default Fee
- Until July 1, 2006 guarantors have the authority
to charge a guarantee fee not to exceed 1. - HERA eliminates this fee but substitutes a very
different 1 fee. - For loans guaranteed on or after July 1, 2006
guarantors must pay a 1 Federal default fee into
their Federal Reserve Funds. 428(b)(1)(H)(ii),
428H(h) - This applies to Stafford and PLUS loans only.
75 Federal Default Fee
- This applies to all guarantors, including those
operating under a VFA. 428A(a)(1)(C) - The Federal Default fee may be
- Deducted from the borrowers proceeds, or
- Paid from other non-Federal sources.
- Other non-Federal sources would probably mean the
guarantors Operating Fund.
76 Federal Default Fee
- The guarantee fee and Federal Default fee have
some obvious similarities - Both are 1
- Both can be deducted from loan proceeds.
- However, if a guarantor chooses not to charge the
borrower, the fees are very different - For the guarantee fee, it represents revenue not
received - For the Federal Default fee, it represents an
expense to the agencys Operating Fund.
77 Federal Default Fee
- Guarantors use their Operating Funds to pay for
most of their activities including - Training
- Publications
- Default prevention activities
- Sponsorships.
- To the extent that the guarantor pays the Federal
default fee on the borrowers behalf, this is
less money the guarantor can spend on these
activities.
78 Federal Default Fee
- Some guarantors have already announced they will
deduct the fee from the borrowers proceeds. - It is inevitable that most if not all
guarantors will have to charge the borrower this
fee in the future, unless. - Lenders may choose to pay this fee on the
borrowers behalf.
79 Federal Default Fee
- There is one operational note schools need to
keep in mind based on the effective date of the
fee. - Because the fee is based on the date of
guarantee, schools may not know whether a fee was
imposed until after the loan is guaranteed. - Another operational issue is that disbursement
amounts could vary by guarantor for the same
gross loan amount. - The default fee is to be deducted proportionately
from each disbursement prior to disbursing to the
borrower.
80 - Graduate and Professional PLUS Loans
81 Graduate PLUS Loans
- HERA amends Section 428B of the HEA to make
graduate and professional students eligible for
PLUS loans. - Dear Colleague Letter GEN-06-02 establishes the
trigger date for these loans. - For FFELP, the trigger is loans certified on or
after July 1, 2006. - For DL, the trigger is loans originated on or
after July 1, 2006.
82 Graduate PLUS Loans
- HERA simply added the phrase graduate or
professional student before each instance of the
word parent. - This means that all eligibility and qualifying
conditions that previously applied only to
parents will also apply to graduate and
professional students, notably - No adverse credit history
- Determining maximum loan amount COA less EFA
- Interest rate
- Repayment requirements.
83 Graduate PLUS Loans
- Dear Colleague Letter GEN-06-02 adds two
requirements for student PLUS loans. - Students are required to complete the FAFSA
- Students must first apply for their maximum
annual Stafford eligibility, both subsidized and
unsubsidized.
84 Graduate PLUS Loans
- How will students apply?
- Every graduate or professional student obtaining
a PLUS loan will have to complete and sign the
PLUS MPN. - FFEL community has made recommendations to ED
- Use the current form with an addendum until a new
form is available - Have the student complete both the parent and
student sections
85 Graduate PLUS Loans
- Law and regulations require PLUS repayment to
begin within 60 days of final disbursement. - Graduate and professional students are not exempt
from this requirement. - Will student PLUS borrowers be eligible for a
deferment or forbearance while in school?
86 Graduate PLUS Loans
- Yes - students in repayment are eligible for an
in-school deferment. - For new borrowers on or after July 1, 1993 the
regulations say
87 Graduate PLUS Loans
- The student PLUS borrower should not have to file
a deferment form
88 Graduate PLUS Loans
- Electronic processing will require Commonline and
CRC changes. - NCHELP Electronic Standards Committee is
evaluating adding new codes - Loan type for CL4 and CL5
- Form Type for CL4, CL5 and CRC
- Award Type for CLC.
89 90 Loan Limit Increases
- HERA increases loan limits in a limited way.
- DCL GEN-06-02 sets the triggers as follows
- For FFEL, loans certified on or after July 1,
2007 - For DL, loans originated on or after July 1, 2007.
91 Loan Limit Increases
- The annual Stafford loan limit for students who
have not completed the first year of a program of
undergraduate study is raised to 3,500 up from
2,625. 428(b)(1)(A)(i)(I) - For second year undergraduates, the annual
Stafford loan limit is raised from 3,500 to
4,500. 428(b)(1)(A)(ii)(I) - This does not raise the aggregate undergraduate
loan limit.
92 Loan Limit Increases
93 Loan Limit Increases
- One limit did not change - 4,000 for preparatory
coursework necessary for enrollment in an
undergraduate degree or certificate program. - HERA raises the unsubsidized Stafford loan limits
for preparatory coursework and teacher
certification programs for students who have
already earned their Baccalaureates.
94 Loan Limit Increases
- The annual unsubsidized Stafford loan limit is
raised from 5,000 to 7,000 for - Preparatory coursework necessary for enrollment
in a graduate or professional program,
428H(d)(2)(D)(i) and - Teacher certification programs.
428H(d)(2)(D)(ii) - The trigger event is loans certified or
originated on or after July 1, 2007.
95 Loan Limit Increases
- The annual unsubsidized loan limit for graduate
and professional students will rise from 10,000
to 12,000. 428H(d)(2)(C) - The trigger event is loans certified or
originated on or after July 1, 2007.
96 Loan Limit Increases
97 Loan Limit Increases
- The combined aggregate limit for graduate and
professional students of 138,500 is not found in
law only in regulation. 682.204(e)(2) - Because of the change in law, the Secretary may
have to increase the aggregate limit found in
regulation. 428H(d)(3) - DCL GEN-06-02 did not address this issue.
98 Loan Limit Increases
99 Loan Limit Increases
100 - Disbursement Rule Changes
101 Disbursement Rule Changes
- HERA restores two popular disbursement rules that
expired on October 1, 2002 - Qualifying schools do not have to make multiple
disbursements for single-term (one semester, one
trimester, one quarter or 4 months) loans
428G(a)(3) - Qualifying schools do not have to wait 30 days to
deliver loan funds to first-year, first-time
borrowers 428G(b)(1)
102 Disbursement Rule Changes
- To qualify, schools must have a cohort default
rate of less than 10 for each of the most recent
3 years for which data are available - This change took effect on the date of enactment
- February 8, 2006. - The trigger is any disbursement made on or after
February 8, 2006.
103 Disbursement Rule Changes
- HERA also modified disbursement rules for
students studying abroad. 428(b)(1)(N)(2) - Law previously required disbursements directly to
the student upon the students request if - Student was enrolled in a U.S. school in a study
abroad program, or - Student was enrolled in a foreign school
104 Disbursement Rule Changes
- These rules are now slightly different for study
abroad students - Student can still receive a direct disbursement
upon request, however - Disbursement cannot be made until the enrollment
is verified by the lender or guarantor. - The trigger is loans with a first disbursement on
or after July 1, 2006.
105 Disbursement Rule Changes
- For students enrolled in an eligible foreign
institution - The request for disbursement directly to the
student must be made by the foreign institution,
and - Disbursement cannot be made until the enrollment
is verified by the lender or guarantor. - The trigger is for loans first disbursed on or
after July 1, 2006. - Foreign schools are no longer exempt from
multiple disbursement requirements and must delay
delivery of the first disbursement to a
first-time undergraduate for 30 days. - The trigger is for loans with loan periods on or
after July 1, 2006.
106 Disbursement Rule Changes
- ED already had rules in place requiring
verification of enrollment for students enrolled
in a foreign school. DCL G-03-348 - Lenders and guarantors will have to determine
method for verifying enrollment for students in
study abroad programs.
107 Disbursement Rule Changes
- School responsibilities for late disbursements
are changed by HERA. - Once a school has determined a borrowers
eligibility for a late disbursement or
post-withdrawal disbursement, the school must - Contact the borrower
- Explain to the borrower the obligation to repay
the loan funds following such a disbursement
108 Disbursement Rule Changes
- The school must then
- Obtain the borrowers confirmation that the loan
funds are still required - Document the borrowers file with the result of
such contact and the final determination made
concerning such disbursement. 484B(a)(4)(A)
109 Disbursement Rule Changes
- HERA made some other minor disbursement rule
changes. - Law previously allowed lenders to fund
disbursements through escrow accounts up to 21
days before disbursement. Maximum is now 10 days.
428(i)(1) - Limits the interest lenders can receive on loans
disbursed through an escrow agent to no more than
3 days before the first disbursement.
428(a)(3)(A)(v)
110 -
- Direct Loan Repayment Plans
111Direct Loan Repayment Plans
- HERA requires that the repayment plans offered in
the Direct Loan Program must generally be the
same as those offered in the FFEL program under
section 428(b)(9). This applies to the following
repayment plans - Standard
- Graduated
- Extended.
- Except Direct Loan will continue to offer Income
Contingent Repayment Plan
112Direct Loan Repayment Plans
- Before HERA, the Direct Loan graduated plan
allowed terms from 12 to 30 years based upon the
balance. - Requires existing Direct Loan Plans be aligned
with FFEL - Standard and Graduated repayment plan must be
paid over a fixed period not to exceed 10 years,
regardless of amount - Effective to Direct loan borrowers who enter
repayment on their loans after July 1 2006
113Direct Loan Repayment Plans
- Direct Loans extended plan also allowed terms
from 12 to 30 years based upon the balance. - Direct Loans extended plan will now mirror FFEL
- Applies to new borrowers on/after October 7, 1998
- Must have more than 30,000 in loans after
October 7, 1998 - Repayment cannot exceed 25 years
- Effective for Direct DL borrowers entering
repayment on or after July 1, 2006.
114Direct Loan Repayment Plans
- Direct Loan Consolidation Borrowers repayment
plan changes offered to borrowers. - The options will be as follows
- Standard or graduated 10-year maximum term
- Extended 25-year maximum for new borrowers
on/after 10/7/1998 with 30,000 debt - For borrowers with 30,000 debt
- 30,001 through 39,999 20-year maximum term
- 40,000 through 59,999 25-year maximum term
- 60,000 and above 30-year maximum term
115 116 Consolidation Loans
- In some respects, HERA is as important for what
it did not change about Consolidation as for what
it did - The single holder rule was retained
- The interest rate is unchanged.
- The changes that were made
- Add parity between Direct and FFELP Consolidation
loans - Generally put more restrictions on Consolidation
loans regardless of the program.
117 Consolidation Loans
- Two sections of the Higher Education Act
regarding Direct Consolidation loans were
changed. - Before HERA, the HEA required parallel terms,
conditions, benefits, and amounts for FFELP and
Direct Stafford and PLUS loans but not
Consolidation. - Direct Consolidation loans were added to this
requirement. 455(a)(1) - The trigger event for this provision is
applications received by Direct Loans on or after
July 1, 2006.
118 Consolidation Loans
- Additional language was added to this section
requiring - DL Consolidation borrowers to meet the same
eligibility requirements as FFELP Consolidation
borrowers - The Secretary has to comply with the same
requirements as a FFELP Consolidation lender.
119 Consolidation Loans
- HERA explicitly eliminates in-school
consolidation in both the Direct Lending and FFEL
programs. - This change in the law eliminates the ability of
a borrower to request to enter repayment before
the end of the grace period. 428(b)(7) - Trigger event borrower requests received by
lenders on or after July 1, 2006 will be denied.
120 Consolidation Loans
- The law requires Consolidation borrowers to be in
a repayment status, so this new provision
effectively eliminates in-school consolidation.
428C(a)(3) - This also eliminates in-school consolidation in
DL due to the requirement for parallel terms.
121 Consolidation Loans
- HERA also eliminates spousal consolidation.
Deletes 428C (a)(3)(C) - This applies to both FFEL and Direct Loans.
- The trigger is Consolidation applications
received on or after July 1, 2006.
122 Consolidation Loans
- HERA eliminates the ability of a borrower to
reconsolidate a consolidation loan between the
FFEL and DL programs. 428C(a)(3)(B)(i) - There is an exception to this if
- A FFELP Consolidation borrower seeks a DL
Consolidation to obtain an income-contingent
repayment plan, and - The FFELP Consolidation loan has been submitted
to the guarantor for default aversion assistance.
428C(a)(3)(B)(v) - The trigger event is consolidation applications
received on or after July 1, 2006.
123 Consolidation Loans
- The Department of Education must offer a FFELP
borrower a Direct Consolidation loan if - A lender denies an eligible borrowers
Consolidation application, or an application with
income-sensitive repayment terms - To resolve a default. 428C(b)(5)
- Trigger event consolidation loan applications
received on or after July 1, 2006.
124 -
- Deferment Forbearance Changes
125Deferment and Forbearance
- A new deferment for military service was added to
the Higher Education Act - Section 428(b)(1)(M) adds a new deferment for
military service for FFELP borrowers - Direct Loan borrowers get the same benefit
455(f)(2)(C) - Perkins borrowers were also included in this
change 464(c)(2)(A) - Effective date loans for which the first
disbursement is made on or after July 1, 2001.
126Deferment and Forbearance
- Consolidation loans also qualify for this
deferment, but there is a catch. - All of the borrowers Title IV loans being
consolidated must have a first disbursement on or
after July 1, 2001.
127Deferment and Forbearance
- The effective date creates some issues
- Deferments have typically been borrower-based,
NOT loan-based - Creates situation where a borrower may have some
loans in deferment but others in repayment - Because the effective date is retroactive,
borrower could have made payments on loans that
could have been in deferment - The law addresses this by saying Nothing in the
amendments made by this section shall be
construed to authorize any refunding of any
repayment of a loan.
128Deferment and Forbearance
- Deferment is limited to not in excess of 3
years - To qualify the borrower must be
- serving on active duty during a war or other
military operation or national emergency or - performing qualifying National Guard duty during
a war or other military operation or national
emergency - This wording requires that the law contain some
definitions.
129Deferment and Forbearance
- Active Duty
- The term active duty' has the meaning given
such term in section 101(d)(1) of title 10,
United States Code, except that such term does
not include active duty for training or
attendance at a service school. - Section 101(d)(1) of title 10, USC The term
active duty means full-time duty in the active
military service of the United States. Such term
includes full-time training duty, annual training
duty, and attendance, while in the active
military service, at a school designated as a
service school by law or by the Secretary of the
military department concerned. Such term does not
include full-time National Guard duty.
130Deferment and Forbearance
- Military Operation
- a contingency operation as such term is defined
in section 101(a)(13) of title 10, United States
Code. - Section 101(a)(13) of title 10, USC The term
contingency operation means a military
operation that - (A) is designated by the Secretary of Defense as
an operation in which members of the armed forces
are or may become involved in military actions,
operations, or hostilities against an enemy of
the United States or against an opposing military
force or - (B) results in the call or order to, or retention
on, active duty of members of the uniformed
services under section 688, 12301 (a), 12302,
12304, 12305, or 12406 of this title, chapter 15
of this title, or any other provision of law
during a war or during a national emergency
declared by the President or Congress.
131Deferment and Forbearance
- National Emergency the national emergency by
reason of certain terrorist attacks declared by
the President on September 14, 2001, or
subsequent national emergencies declared by the
President by reason of terrorist attacks.
132Deferment and Forbearance
- Serving on active duty during a war or other
military operation or national emergency means
service by an individual who is - a Reserve of an Armed Force ordered to active
duty under section 12301(a), 12301(g), 12302,
12304, or 12306 of title 10, United States Code,
or any retired member of an Armed Force ordered
to active duty under section 688 of such title,
for service in connection with a war or other
military operation or national emergency,
regardless of the location at which such active
duty service is performed and - any other member of an Armed Force on active
duty in connection with such emergency or
subsequent actions or conditions who has been
assigned to a duty station at a location other
than the location at which such member is
normally assigned.
133Deferment and Forbearance
- Qualifying National Guard Duty
- service as a member of the National Guard on
full-time National Guard duty (as defined in
section 101(d)(5) of title 10, United States
Code) under a call to active service authorized
by the President or the Secretary of Defense for
a period of more than 30 consecutive days under
section 502(f) of title 32, United States Code,
in connection with a war, other military
operation, or a national emergency declared by
the President and supported by Federal funds. - Section 101(d)(5) of title 10, USC The term
full-time National Guard duty means training or
other duty, other than inactive duty, performed
by a member of the Army National Guard of the
United States or the Air National Guard of the
United States in the members status as a member
of the National Guard of a State or territory,
the Commonwealth of Puerto Rico, or the District
of Columbia under section 316, 502, 503, 504, or
505 of title 32 for which the member is entitled
to pay from the United States or for which the
member has waived pay from the United States.
134Deferment and Forbearance
- This will require a change in the PUB deferment
form or creation of a new form. - DCL GEN-06-02 lists the documentation
requirements - Copy of the borrowers military orders, or
- Statement from the borrowers commanding or
personnel officer indicating the borrower is
serving in a capacity that meets the terms of
this deferment
135Deferment and Forbearance
- HERA makes it easier for borrowers to obtain
forbearance. - It eliminates the requirement that forbearance be
in writing, a provision originally included in
the Fed Up legislation. 428(c)(3) - This applies to all types of forbearance.
- The trigger is agreements entered into or
renegotiated with a borrower on or after July 1,
2006.
136Deferment and Forbearance
- To document the forbearance, the lender must
- confirm the agreement of the borrower by notice
to the borrower from the lender, and - recording the terms in the borrowers file.
428(c)(10) - DCL GEN-06-02 indicates these additional steps
apply to non-written forbearance.
137 138 School as Lender
- HERA contains two new lender eligibility
requirements - The school must have met the requirements to be
an eligible lender as of February 7, and - The school must have made a loan on or before
April 1, 2006. 435(d)(2)(A)(ix) - There are no provisions for approving new school
as lender applications after April 1, 2006. - Schools that are lenders may continue to make
loans, but with some new conditions.
139 School as Lender
- Under HERA, school lenders
- Cannot make loans to undergraduate students
- Cannot make PLUS loans to parents or
graduate/professional students - Cannot make a loan to a borrower not enrolled at
that school - Can make both subsidized and unsubsidized
Stafford loans to graduate or professional
students - Must offer a lower origination fee and/or
interest rate than the maximum allowed by law. - 435(d)(2)(A)
140 School as Lender
- Other new restrictions on school lenders include
- Cannot have a cohort default rate greater than
10 (previously 15) - Must use a competitive basis for awarding a
contract for financing, servicing or
administering loans - Must submit an annual compliance audit to ED
- Earnings must be used for need-based grant aid
and must supplement, not supplant funds that
would otherwise go toward grant aid.
435(d)(2)(A) (C)
141 School as Lender
- Administrative Expenses
- School may use special allowance and interest
payments for reasonable and direct administrative
expenses. - 435(d)(2)(B)
142 - Miscellaneous
- Part B Changes
143 Miscellaneous Part B Changes
- There are a few other changes to Part B of the
HEA worth mentioning - ED now has the authority to standardize forms and
procedures regarding the anticipated graduation
date. 432(l)(1)(H) - ED funding in Section 458 of the HEA is no longer
mandatory. It is now subject to the annual
appropriations process. 458 - Requires guarantors to file for reinsurance
within 30 days rather than 45 days. 428(c)(1)(A)
144 - Reductions in Lender Income
145 Reductions in Lender Income
- Some of the ways lender income will be reduced
are - For loans with a first disbursement on or after
July 1, 2006, default claims will be paid at 97
instead of 98 428(b)(1(G)(ii) - Lenders designated as exceptional performers, or
a lender contracting with a servicer designated
as an exceptional performer, will be paid 99
instead of 100 on default claims submitted to
the guarantor on or after July 1, 2006.
428J(b)(1)
146 Reductions in Lender Income
- Elimination of the 9.5 minimum yield on loans
made or purchased with pre-October 1, 1993,
tax-exempt funding when such tax-exempt funding
is refunded on or after September 1, 2004,
including when such loans are no longer held in
minimum yield eligible tax-exempt fundings on or
after September 20, 2004. 438(b)(2)(B)(iv)
(v)
147 Reductions in Lender Income
- Elimination of recycling for loans made or
purchased on or after February 8, 2006, and for
loans held by the lender that are not receiving
the minimum yield for eligible tax-exempt funding
as of February 8, 2006. 438(b)(2)(B)(vi) (vii)
148 Reductions in Lender Income
- Permitted exceptions until December 31, 2010, in
the case of a holder that is, on February 8,
2006, and during the applicable quarter for which
special allowance is paid - A unit of State or local government or a
nonprofit private entity - Not owned or controlled by, or under the common
ownership or control with, a for-profit entity
and - Held, directly or through any subsidy, affiliate,
or trustee, a total unpaid balance of principal
equal to or less than 100,000,000 on loans for
which special allowances were paid at 9.5 in the
most recent quarterly payment prior to September
30, 2005.
149 Reductions in Lender Income
- For loans first disbursed on or after April 1,
2006, lenders are required to remit excess
interest back to ED when the special allowance
calculation for a given quarter is at a rate that
is less than the applicable interest rate.
438(b)(2)(I)(v) - ED intends to collect the excess interest from
lenders quarterly
150 - Special Allowance Payments
151 Special Allowance Payments
- HERA corrects the SAP Gap.
- This eliminates the restriction placed on the
amount of special allowance that may be paid on
PLUS and Consolidation loans payments made on or
after April 1, 2006. 438(b)(2)(I)(iii) (iv)
152 153 Teacher Loan Forgiveness
- HERA makes permanent the loan forgiveness
provisions in the Taxpayer-Teacher Protection Act
of 2004. - The Taxpayer-Teacher Protection Act provides for
increased loan forgiveness of up to 17,500 for
Stafford borrowers meeting certain teaching
requirements. - The Taxpayer-Teacher Protection Act took effect
October 30, 2004.
154 Teacher Loan Forgiveness
- The Teacher-Taxpayer Act was passed as a budget
bill, as a result, it expired at the end of the
2005 Federal fiscal year September 30, 2005. - HERA retroactively eliminated the ending date for
this program ensuring no break in benefits under
this program.
155 Teacher Loan Forgiveness
- The Taxpayer-Teacher Protection Act defines an
eligible borrower as one - Who has taught at least 5 years in a low-income
(Title I) school and is a - - Secondary school math or science teacher, or
- Special education teacher, and
- Who highly qualified as defined in No Child
Left Behind.
156 Teacher Loan Forgiveness
- HERA allows teachers in private schools to
qualify for forgiveness if they pass grade level
and subject matter competency tests. Competency
tests must be accepted by at least 5 States. - Score must meet or exceed the average passing
score. - 428J(g)(3) and 460(g)(3)
- Effective for Teacher Loan Forgiveness discharge
applications received on or after July 1, 2006.
157 Teacher Loan Forgiveness
- The teacher loan forgiveness program now has
qualifications that apply to all borrowers and
other qualifications that apply to certain
borrowers. - Standard qualifications for all borrowers
- New borrower on or after October 1, 1998
- Employed full time for at least 5 complete years
at a low-income school (Title 1) - Is highly qualified
- Is not in default on loan seeking forgiveness
-
158 Teacher Loan Forgiveness
- To qualify for up to 5,000 in forgiveness, the
teacher must meet the standard qualifications. - To qualify for up to 17,500 in forgiveness, the
teacher must meet the standard qualifications as
well as being - A full-time secondary school math or science
teacher, or - A special education teacher whose primary
responsibility is to teach children with
disabilities, and -