FFEL Regulatory and Policy Update

1
Session 63

• FFEL Regulatory and Policy Update
• Pamela Moran
• Office of Postsecondary Education

2
Agenda

• Legislation
• Negotiated Rulemaking- Loans Regulations
• Other Regulations
• FFELP Forms

3
Legislation
4
Reauthorization of the Higher Education Act

• Third Higher Education Extension Act of 2007
  (S.2258)
• Extends the Higher Education Act through March
  31, 2008
• Senate Reauthorization Bill-S.1642
• House Reauthorization Bill-H.R. 4137

5
Other Legislation

• HEROES Act Reauthorized and made permanent
  September 30, 2007 (P.L. 110-93)
• College Cost Reduction and Access Act of 2007
  September 27, 2007 (P.L. 110-84)

6
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Loan forgiveness for
• Public service employees
• Non-defaulted Direct Loan borrowers only
• Balance of principal and interest forgiven after
  120 payments made after 10/1/2007

7
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• FFEL-only borrowers authorized to seek DL
  Consolidation for this purpose effective July 1,
  2008
• Included reconsolidation of existing FFEL
  Consolidation Loan

8
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Must repay under any combination of
• - income-based repayment
• - income-contingent repayment
• - 10-year standard repayment
• - any DL repayment based on 10-year repayment
  amounts

9
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Must be employed in public service during
  120-payment period
• Must be employed in public service job at time of
  forgiveness

10
College Cost Reduction and Access Act of 2007-
Budget Reconciliation

• Public Service Jobs Include
• Full-time job in government or emergency
  management
• Military service
• Public safety
• Public health

11
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Public education (including early childhood
  education)
• Law enforcement
• Public interest law services (including
  prosecution or public defense or legal advocacy
  in low-income communities at a non-profit
  organization)

12
College Cost Reduction and Access Act Budget
Reconciliation

• Public child care
• Public service for the elderly and disabled
• School-based library science and other
  school-based services

13
College Cost Reduction and Access Act Budget
Reconciliation

• Service at a 501(c)(3) organization
• Full-time faculty at a Tribal college and in
  other high-needs areas determined by ED

14
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Creates new Income-Based repayment plan for FFEL
  and DL borrowers (other than parent
  PLUS)-effective July 1, 2009
• Creates partial financial hardship deferment

15
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Partial financial hardship annual repayments
  exceed 15 of AGI minus 150 of poverty line
  based on family size based on standard 10-year
  repayment
• Unpaid amounts forgiven after 25 years

16
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• New economic hardship covers borrowers with
  income not exceeding 150 of poverty line
  applicable to the borrowers family size
  effective October 1, 2007
• Debt-to-income standard retained

17
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Reduces subsidized undergrad Stafford Loan
  Interest Rates in FFEL and Direct Loan Programs
• 6 for loans first disbursed 7/1/2008-6/30/2009
• 5.6 for loans first disbursed 7/1/2009
  6/30/2010

18
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Reduces subsidized undergrad Stafford Loan
  Interest Rates in FFEL and Direct Loan Programs
• 4.5 for loans first disbursed 7/1/2010
  6/30/2011
• 3.4 for loans first disbursed 7/1/2011
  6/30/2012

19
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• HERA Military Service Deferment Amended-
  Effective 10/1/2007
• Eliminates 3-Year Limit
• Extends deferment for 180-days after
  demobilization
• Covers all title IV loans, not just loans
  disbursed on/after 7/1/2001

20
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• New Military Deferment for 13 months after
  service for-effective 10/1/2007
• National Guard, Reserve, and Retired Military
  Personnel Called to Active Duty
• Enrolled or enrolled within 6 months of
  activation

21
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Parent PLUS Auction Authorized
• FFEL Parent PLUS Loans for new borrowers
  beginning July 1, 2009

22
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• State-based auction every 2 years
• Origination rights limited to 2 lowest bidders

23
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Bids based on lender special allowance rate (SAP)
• Winning lender must make PLUS
• loans available to each parent of a dependent
  attending school in the State

24
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Secretary selects parent PLUS lender-of-last-resor
  t (LLR) for each state

25
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Reduction in loan holder special allowance rate
  (SAP)
• Effective for loans first disbursed on or after
  October 1, 2007

26
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Different reductions for for profit and
  not-for-profit loan holders
• For profit
• -- Stafford and Consolidation
• 0.55 Reduction
• -- PLUS (incl. Grad PLUS)
• 0.85 reduction

27
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Not-for-profit
• -- Stafford and Consolidation
• 0.40 reduction
• -- PLUS (incl.Grad PLUS)
• 0.70 reduction

28
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Must be acting as not-for-profit on date of
  enactment unless waived by State
• Not-for-Profit defined as
• -- a State, or a political subdivision,
  authority, agency, or instrumentality of State

29
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• -- Entity described under section 150(d)
  of IRS Code
• -- Entity described under section 501 (c)(3)
  of IRS Code

30
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• -- Eligible lender trustee acting on behalf
  of State, other State-related entity, or
  150(d)(2) or 501(c)(3) entity

31
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Lender Default Insurance Reduced
• Loans first disbursed on/after October 1, 2012
• Reduced from 97 to 95

32
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Exceptional Performer Status Eliminated
• Effective for lenders/lender servicers on October
  1, 2007

33
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Reduces GA account maintenance fee from 0.10 to
  0.06- payments received on/after October 1, 2007

34
College Cost Reduction and Access Act of 2007 -
Budget Reconciliation

• Reduces GA default collection retention to 16 -
  payments received on/after October 1, 2007

35
2006-2007Negotiated Rulemaking
36
Four Negotiating Teams

• Loans NPRM 8/7/07
• ACG/National Smart NPRM 8/7/07
• General Provisions NPRM 8/8/07
• Accreditation No Regulations

37
LOANS NPRM

• No Consensus on NPRM
• NPRM reflected what ED heard and deliberations
  of Secretarys Loan Task Force

38
Regulations Calendar

• NPRM June 12, 2007
• Deadline for Comments
• August 13, 2007
• 241 Comments Received

39
Regulations Calendar

• Final rules no later than November 1, 2007
• Effective date July 1, 2008 with possible early
  voluntary implementation

40
Loans Issues -All

• Simplification of the Deferment Process
• Accurate Complete Copy of Death Certificate
• Total and Permanent Disability

• NSLDS Reporting
• Certification of Electronic Signatures
• Record Retention on MPNs

41
Loans Issues FFEL/DL

• Maximum Loan Period
• Identity Theft
• Grad/Prof PLUS Loan Counseling

42
Loans Issues FFEL

• Prohibited Inducements
• Use of Preferred Lenders
• FFEL Loan Certification
• Frequency of Capitalization
• Eligible Lender Trustees (ELTs)

43
Loans Issues - Perkins

• Mandatory Assignment of Defaulted Loans
• Reasonable Collection Costs Definition
• Child and Family Services Cancellation

44
Simplified Deferment Process

• 682.210 and 685.204 allows deferment based on
  information from another loan holder or from
  NSLDS if
• New borrower with first loan disbursed on or
  after July 1, 1993
• Written or verbal deferment request received

45
Simplified Deferment Process

• FFEL or Direct Loan deferment already granted for
  same reason and same period
• Loan holder has no conflicting information on
  borrowers eligibility

46
Simplified Deferment Process

• Notice to borrower required
• FFEL and Direct Loan deferment may be granted
  only for Economic Hardship based on Perkins Loan
  deferment

47
Simplified Deferment Process

• 682.210 and 685.204 amended to allow military
  service or armed forces deferment based on
• - request of borrower or borrowers
  representative
• - documentation establishing borrower
  eligibility

48
Simplified Deferment Process

• Required notice to the borrower and borrowers
  representative, if applicable, that the deferment
  has been granted

49
Accurate and Complete Copy of a Death Certificate

• 682.402 for death discharges amended to allow
  use of an accurate and complete photocopy of a
  borrowers death certificate

50
Accurate and Complete Copy of a Death Certificate

• NOTEexceptional circumstances discharge by
  chief executive officer based on other reliable
  information unchanged

51
Total and Permanent Disability Discharges

• Regulations governing TPD discharges restructured
  in 682.402
• Eligibility requirements and the discharge
  process clarified

52
Total and Permanent Disability Discharges

• Regulations
• -Require TPD application
• submission within 90 days of
• date certified by physician
• Define borrowers TPD date as physicians
  certification date

53
Total and Permanent Disability (TPD) Discharges

• DO NOT disqualify the borrower for final
  discharge based on Title IV loans or earned
  income before the TPD date

54
Total and Permanent Disability (TPD) Discharges

• -DO disqualify the borrower for final discharge
  based on Title IV loans from TPD date until date
  of Secretarys initial TPD determination and
  during the conditional discharge period

55
Total and Permanent Disability (TPD) Discharges

• Make the Conditional Discharge Period a 3-year
  prospective period from TPD date

56
Total and Permanent Disability (TPD) Discharges

• Regulations
• -Allow minimal earned income during conditional
  discharge period (no Title IV loans)
• -Require notice to borrower that no payments on
  loan are due during the discharge process

57
Total and Permanent Disability (TPD) Discharges

• Require only return of loan payments made after
  the TPD date (date of physician certification of
  disability)

58
NSLDS Reporting Requirements

• 682.208, 682.401 and 682.414 amended to require
  enrollment and loan status reporting (or any
  other Title IV-related data required by the
  Secretary) by Secretarys established deadline

59
NSLDS Reporting Requirements

• Deadlines to be published in Federal Register
  Notice or DCL format

60
NSLDS Reporting Requirements

• FFEL guaranty agency enrollment and loan status
  reporting deadline to loan holders reduced from
  60 to 35 days

61
Certification of Electronic Signatures on
Assigned MPNs

• 682.409 and 682.414 amended to require loan
  holders to maintain certification of creation and
  maintenance of E-MPN process, including borrower
  authentication and signature process

62
Certification of Electronic Signatures on
Assigned MPNs

• Requires loan holders to retain an original
  electronically signed MPN for at least 3 years
  after all MPNs loans are satisfied

63
Certification of Electronic Signatures on
Assigned MPNs

• Upon Secretarys request
• loan holder must provide the certification and
  cooperate in all activities to enforce an
  assigned loan, including testimony in a legal
  proceeding

64
Certification of Electronic Signatures on
Assigned MPNs

• Required certification includes
• -Description of borrowers steps in executing
  the signed MPN
• Copy of each screen the borrower saw when signing
  the MPN electronically

65
Certification of Electronic Signatures on
Assigned FFEL Loan MPNs

• Required certification includes
• Description of field edits and other security
  measures used to ensure data integrity through
  the loan origination process

66
Certification of Electronic Signatures on
Assigned FFEL Loan MPNs

• Required certification includes
• Description of storage process/systems for signed
  MPNs to ensure document integrity (no
  alterations)

67
Certification of Electronic Signatures on
Assigned FFEL Loan MPNs

• Required certification includes
• Documentation supporting the lenders
  authentication electronic signature process
• All other evidence required by the Secretary

68
Certification of Electronic Signatures on
Assigned FFEL Loan MPNs

• Documents to resolve factual disputes on assigned
  loans required within 10 business days of EDs
  request
• Full and complete access to electronic records
  required until all MPN-derived loans satisfied

69
Record Retention Requirements onFFEL MPNs
Assigned to the Department

• 682.409 amended to require a Guaranty Agency to
  submit lender disbursement records on assigned
  loans to ED

70
Maximum Loan Period

• 682.603 and 682.604 amended to
• Eliminate 12-month loan period maximum
• Provide flexibility in non-term and nonstandard
  term program loan certification
• Provide flexibility in rescheduling stop out and
  return disbursements within 180-day period.

71
Loan Counseling for Grad/Prof PLUS Borrowers

• 682.603 requires, before certifying PLUS,
  comparative info to eligible Stafford
  non-applicant
• PLUS/Stafford interest rates, interest accrual
  periods, and grace periods
• Opportunity for Stafford Loan must be given
  before receipt of PLUS Loan

72
Loan Counseling for Grad/Prof PLUS Borrowers

• Initial counseling required for all PLUS
  borrowers
• Exit counseling required for Stafford/PLUS
  combination borrowers

73
Use of Eligible Lender Trustees (ELTs) by FFEL
Schools

• Lender definition in 682.200 amended to prohibit
  new ELT relationships with schools on/after
  September 30, 2006
• 682.602HERA FFEL school lender limits applied
  to school ELT arrangements 1/1/2007

74
Frequency of Interest Capitalization in FFEL
Program

• 682.202 amended to limit frequency of
  capitalization on Federal Consolidation Loans
  during in-school deferment period
• Lenders may only capitalize unpaid interest at
  expiration of deferment period

75
Identity Theft Discharge

• HERA provided for a FFEL and Direct Loan
  discharge if borrowers loan eligibility was
  falsely certified due to the crime of identity
  theft
• Implementing Interim and Revised Final
  Regulations published in 2006

76
Identity Theft Discharge

• 682.402 defines crime for discharge as
  judicial determination by local, State, or
  Federal court that crime of identity theft has
  occurred and names perpetrator
• Requires individual did not receive or benefit
  from loan proceeds

77
Identity Theft Discharge

• No change to existing discharge eligibility
  requirements
• Upon receipt of valid identity theft
  report/notice alleging ID theft, lender may
• suspend credit bureau reporting on a loan for 120
  days
• grant a 120-day administrative forbearance

78
School FFEL Loan Certification

• 682.603 (f) reorganized and amended
• FFEL schools May Not
• - Refuse/Delay certification
• based on choice of lender or
• GA
• - Assign lender to first-time
• borrower in award packaging
• or through other methods

79
School FFEL Loan Certification

• Engage in a pattern or practice of discrimination
  to deny FFEL access
• Refuse to certify or certify a reduced amount
  except on a case-by-case, documented basis with
  reason provided to borrower in writing

80
School Preferred Lender List in FFELP

• Background
• Schools Option
• Allowed But Never Regulated
• Evolution
• Default prevention
• Simplification E-transmission
• Competition
• Proliferation of borrower benefits

81
School Preferred Lender List in FFELP

• Regulations require
• List must contain at least 3 unaffiliated lenders
• Unaffiliated means
• No common control or ownership
• No common directors, trustees, or general
  partners

82
School Preferred Lender List in FFELP

• 682.212 requires a school to
• Disclose method/criteria for lender inclusion on
  the list
• Provide comparative information on borrower
  benefits offered by listed lenders
• Department to provide model format for school use

83
School Preferred Lender List in FFELP

• Include prominent statement advising borrowers
  that use of the schools preferred lender not
  required
• Update at least annually

84
School Preferred Lender List in FFELP

• Under 682.212, a school MUST NOT
• Include lenders that were solicited and provided
  school or school- employee benefits, but may
  include lenders solicited for best borrower
  benefits

85
School Preferred Lender List in FFELP

• Under 682.212, a school MUST NOT
• Assign lender to first-time borrower
• Cause any unnecessary delays in certification for
  borrowers not using one of the schools preferred
  lenders

86
FFEL Program Lender and GA Prohibited Inducements

• Background
• Enacted as part of 1986 Amendments to HEA
• 1998 Amendments to HEA allowed lenders and GAs to
  provide assistance to schools comparable to what
  Secretary provides to Direct Loan schools

87
FFEL Program Lender and GA Prohibited Inducements

• Affects lender eligibility and participation and
  GA participation
• Prior regulations primarily reflect statutory
  provisions

88
FFEL Program Lender and GA Prohibited Inducements

• Regulations codify current interpretive and
  clarifying guidance on prohibited inducements and
  retain Prohibited and Permissible Activities
  format of 1989 DCL guidance (89-L-189, February
  1989)

89
FFEL Program Lender and GA Prohibited Inducements

• Regulation introduce use of
• -- rebuttable presumption in formal
  enforcement actions
• Expands use of Federal Trade Commissions (FTC)
  Holder Rule to loans for all schools

90
FFEL Program Prohibited Inducements -Lenders

• Lender definition in 682.200 forbids an eligible
  lender, directly or through an agent from
• - Offering directly or indirectly, points,
  premiums, payments or other inducements to a
  school or any party to secure FFEL applications
  or loan volume

91
FFEL Program Prohibited Inducements -Lenders

• Such as
• Payments to prospective borrowers, including
  prizes and additional financial aid

92
FFEL Program Prohibited Inducements - Lenders

• Payments or other benefits to a school,
  school-affiliated organization, or other
  individual for loan apps, volume of loans, or
  placement on a preferred lender list
• Payment and service on lender advisory boards

93
FFEL Program Prohibited Inducements - Lenders

• Payments or other benefits to student lender reps
  on campus or other solicitors to secure loan
  applications from prospective borrowers

94
FFEL Program Prohibited Inducements - Lenders

• Payment of referral fees, or processing fees not
  required to comply with federal or state law, to
  another lender or other party

95
FFEL Program Prohibited Inducements - Lenders

• Payment of conference or training registration,
  transportation, and lodging costs for school or
  school-affiliated organization employees
• Payment of entertainment expenses related to
  lender-sponsored activities for the same

96
FFEL Program Prohibited Inducements - Lenders

• Undertaking philanthropic activities in exchange
  for FFEL applications, volume, or placement on a
  schools preferred lender list

97
FFEL Program Prohibited Inducements - Lenders

• Providing staffing services to a school, except a
  foreign school, other than on a short-term,
  non-recurring emergency basis, including
  compensated and third-party contractual services

98
FFEL Program Prohibited Inducements - Lenders

• 682.200 provides that an eligible lender may
  ONLY provide
• Assistance to schools comparable to that provided
  DL schools by the Secretary

99
FFEL Program Prohibited Inducements - Lenders

• Support for or participation in student
  aid/financial literacy outreach with schools and
  guaranty agencies, except in-person initial and
  exit counseling

100
FFEL Program Prohibited Inducements - Lenders

• Reasonable costs of meals, refreshments, and
  receptions for meeting, training, or conferences
  if open to all attendees
• Toll-free numbers for FFEL info and school loan
  data transmission

101
FFEL Program Prohibited Inducements - Lenders

• Reduced origination fees (statutorily authorized)
• Reduced interest rates (statutorily authorized)

102
FFEL Program Prohibited Inducements - Lenders

• Payment of Federal Default fees (not statutorily
  prohibited)
• Borrower benefits under repayment incentive and
  certain loan forgiveness programs
• Items of nominal value

103
FFEL Program Prohibited Inducements GAs

• 682.401(e) same as lenders, except GAs permitted
  to pay
• -- travel and lodging expenses related to
  school employee service on GA advisory or
  governing board

104
FFEL Program Prohibited Inducements GAs

• -- reasonable costs of meals and refreshments
  for GA-sponsored training, workshops, and forums
  permitted

105
Negotiated Rulemaking2007-2008

• 2009-10 and subsequent years
• Federal Register notice Fall 2007
• Regional hearings in Fall 2007
• Negotiating committees TBD

106
Negotiated Rulemaking2007-2008

• Committees expected to meet January March 2008
• NPRMS in June 2008
• Final regulations by
• November 1, 2008

107
Other Regulations and Forms
108
Revised Final Regulations 9/28/07

• Part of HEA Extension
• P.L. 109-292
• Loan Discharge for 9/11 spouses and parents
• Interim Final Regulations December 28, 2006

109
Revised Final Regulations 9/28/07

• Revised Final Regulations September 28, 2007
• Spouse of eligible public servant
• Parent of eligible victim
• Includes portion of Consolidation Loan

110
Forms

• MILITARY DEFERMENT (HERA)
• -Form Posted to IFAP
• June 11, 2007-GEN-07-04
• -Requires CCRAA revisions
• 9/11 DISCHARGE APPLICATION
• - Form Posted to IFAP November 9,
  2007GEN-07-08

111
Forms

• Federal Consolidation Loan Application and
  Promissory Note
• -Form Posted to IFAP 3/12/07
• -Requires CCRAA addendum
• PLUS MPN
• -Form approved by OMB and
• to be posted to IFAP with
• CCRAA changes

112
Forms

• Federal Stafford MPN
• -Requires CCRAA addendum
• Teacher Loan Forgiveness undergoing ED review
  prior to entering Paperwork Act clearance process
  

113
Contact Information

• We appreciate your feedback and comments. We can
  be reached at
• Phone[phone]
• Email Pamela.Moran_at_ed.gov
• Fax [phone]