The Higher Education Reconciliation Act of 2005 - PowerPoint PPT Presentation

1 / 179
About This Presentation
Title:

The Higher Education Reconciliation Act of 2005

Description:

In some cases HERA is very specific regarding the triggering event. ... HERA changed the definition of independent student. ... Before HERA: ... – PowerPoint PPT presentation

Number of Views:81
Avg rating:3.0/5.0
Slides: 180
Provided by: jessica76
Category:

less

Transcript and Presenter's Notes

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

11
Effective 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
  • Need Analysis Changes

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
  • Interest Rate Changes

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
  • Loan Fees

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
  • Loan Limits

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

111
Direct 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

112
Direct 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

113
Direct 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.

114
Direct 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
  • Consolidation Loans

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

125
Deferment 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.

126
Deferment 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.

127
Deferment 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.

128
Deferment 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.

129
Deferment 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.

130
Deferment 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.

131
Deferment 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.

132
Deferment 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.

133
Deferment 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.

134
Deferment 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

135
Deferment 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.

136
Deferment 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
  • School as Lender

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
  • Teacher Loan Forgiveness

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
Write a Comment
User Comments (0)
About PowerShow.com