Death and Disability Discharge Issues

1
Death and Disability Discharge Issues

• Kathy Leatherbury, USA Funds
• Rinn Harper, TG

2
Partial Discharge of a Consolidation Loan

• Kathy Leatherbury
• USA Funds

3
Background

• New regulatory language published 11/1/02 allows
  a portion of a Consolidation loan to be
  discharged if
• the dependent student for whom a PLUS loan was
  obtained and later consolidated dies, or
• one of two borrowers of a joint Consolidation
  loan dies or becomes permanently and totally
  disabled

4
Background

• Effective July 1, 2003 unless implemented earlier
  by the guarantor

5
Background

• Addresses two types of Consolidation loan
  scenarios
• Consolidation loans which include PLUS loans
• Joint Consolidation loans

6
Consolidation Loan with Underlying PLUS Loans

• PLUS loan(s) included in the Consolidation loan
• Student for whom the PLUS loan was obtained dies
• The portion of the Consolidation loan that
  represents the PLUS loan(s) for that student is
  eligible for discharge

7
EXCEPTION Consolidation Loan Made Up Solely
of PLUS Loans for One Dependent Student Who
Dies

• Is not treated as a partial discharge as the full
  loan is eligible for discharge
• The loan holder must file a death claim

8
Joint Consolidation Loans

• If one of two borrowers dies, the portion of the
  Consolidation loan that represents that spouses
  underlying loan(s) is eligible for discharge
• If one of two borrowers becomes permanently and
  totally disabled, the portion of the
  Consolidation loan that represents that spouses
  underlying loan(s) is eligible for conditional
  discharge

9
Implementation History

• NCHELPs Program Operations Committee created a
  workgroup to develop industry processes and forms
• Workgroup created the
• Partial Discharge Processing Flow
• Partial Discharge Request Form
• Partial Discharge Questions Answers Document

10
ED Involvement

• Workgroup submitted Partial Discharge Processing
  Flow document, Partial Discharge Request Form and
  the Partial Discharge Questions and Answers
  document to ED
• To ensure the intent of the regulation was met
• Not seeking EDs approval of the form

11
EDs Concerns

• ED identified the following concerns with the
  process created by the workgroup
• Refunding of credit balances prior to final
  discharge
• Ensuring no change in loan status while part of
  the loan was in a conditional discharge status
• Concern with accessibility of payment history
  prior to Consolidation

12
Discussions with ED

• Conference call with ED on 8/13/03 to discuss
  EDs concerns
• ED requested written responses to share with
  others within the Department
• Written responses submitted to ED 9/5/03

13
Answers to EDs Concerns

• Refunding of Credit Balances
• Need to maintain current systematic process of
  refunding to borrower
• Anticipate minimal number of borrowers affected
• Issues with loan holders holding the credit
  balance

14
Answers to EDs Concerns

• No Change in Loan Status
• Only an issue if final discharge is denied
• Proposed that the full Consolidation loan be
  restored to the status at time of conditional
  discharge
• Results in the return of the portion granted
  conditional discharge to the Consolidation loan
  holder

15
Answers to EDs Concerns

• Payments Prior to Consolidation
• Goal was to align the process with current
  processes for Closed School and False
  Certification
• Follow Common Manual subsections 12.8.B and
  12.8.D

16
EDs Response

• ED continues to review our answers
• Final response not yet received

17
Finding the Documents

• The CD contains the following supporting
  documentation
• Partial Discharge Processing Flow
• Partial Discharge Request Form
• Partial Discharge Questions Answers Document

18
Questions
19
Total and Permanent Disability Assignment Issues

• Rinn Harper
• TG

20
Outstanding Issues with ED

• Partial Discharge of Consolidation Loan
• Paid-in-Full Scenario
• School DCL
• NSLDS Entity Code

21
TPD Assignment Survey

• Initiated by Default Aversion and Claims
  Standardization (DACS) workgroup
• Distributed to all 36 guarantors on 10/17/03
• To obtain information regarding problems
  encountered with assignment process

22
Assignment Issues

• Original versus Copy of Loan Discharge
  Application form
• Reporting of Borrower Payments made after the TPD
  date
• Legibility of Loan Discharge Application
• Returning Full Batch Due to One Error
• Assignment with MPN
• Additional comments

23
Conditional Disability Discharge Unit (CDDU)

• Statistics
• Issues Identified

24
Questions